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Omar Effendi sale finalized

After years of unsuccessful attempts to privatize Egypt’s oldest and largest department store, the sale of Omar Effendi to Saudi clothing retailer Anwal United Trading Co. was approved last month by the board of directors of the Holding Company for Trade. The deal is valued at £E 905 million, up from the initial offer of £E 504 million, and is conditional on the Saudi group retaining Omar Effendi’s 6,000 employees. The offer includes £E 200 million to be paid to 1,200 workers in an early retirement package, in addition to £E 200 million to be injected as investments in the company. The deal also requires that Anwal keep Omar Effendi’s branch on Abdel Aziz Street in Cairo, which is considered a historic building.

Anwal operates over 145 showrooms across Saudi Arabia and represents several international brands, including those of French clothing company Etam and Italian apparel-maker Furla.

No interest rate cuts, IMF advises

The Central Bank of Egypt (CBE) should not cut interest rates until liquidity growth decelerates and inflation is consistently low, the International Monetary Fund (IMF) advised in a report issued last month.

IMF directors welcomed the CBE’s plan to move to inflation targeting, referring to the corridor for the overnight interbank rate introduced in May 2005 that has helped reduce the volatility of short-term rates. However, they cautioned that the move would require greater exchange rate flexibility.

The IMF expects the economy to be more broad-based, with construction and services expanding at a “healthy rate” and for economic growth to match last year’s 5.6 percent rate. The current account surplus should narrow, but the balance of payments and external positions is expected to “remain comfortable.” It predicts a decline in the external debt-to-GDP ratio, currently at 30 percent of GDP, over the coming years as a result of prudent external borrowing.

Skin disease afflicts livestock

Agricultural and veterinary experts have issued warnings that the continued spread of lumpy skin disease (LSD) among livestock in the Nile Delta could threaten food security, along with the livelihoods of thousands of cattle breeders. The viral skin disease, which is transmitted by mosquitoes, afflicts cattle with fever and festering skin ulcers.

Lumpy skin disease first struck Egypt in 1988 and quickly spread causing massive economic losses. Government containment measures eventually brought the crisis under control. A new rash of cases that appeared earlier this year has proven more difficult to control. Officials report that over 12 percent of Egypt’s 3.75 million cattle have died from the latest outbreak, causing losses estimated at £E 60 million. So far, over 2.5 million head of cattle have been vaccinated against the disease, but the virus has continued to spread, leading experts to suggest it may be a new strain.

While LSD cannot be contracted by humans, the medical treatment used to control the disease can reside in the animal’s meat for several weeks and in milk for up to six months. Health concerns have already pushed the price of beef down in some infected areas. The leather and dairy industries also stand to lose.

The government so far has offered to compensate only insured cattle owners, though the amount has yet to be decided.

CBE merges three banks

Three commercial banks have been merged into one new financial entity, after each failed to meet the £E 500 million minimum capital requirement set by the Central Bank of Egypt (CBE). Nile Bank, United Egyptian Bank and Islamic Development Bank were merged to form The United Bank with total authorized capital of £E 2.5 billion and paid-in capital of £E 1 billion. The CBE, which is the owner and regulator of the new entity, will pump up to £E 2.5 billion worth of provisions into the new bank and assume £E 4 billion of its accumulated non-performing loans.

The United Bank will conduct traditional banking activities, in addition to Islamic banking transactions through a license acquired by the Islamic Development Bank.

Gov’t unveils bird flu strategy

The Ministry of Health recently outlined its three-stage plan to combat the H5N1 avian influenza virus during the next migratory season. The plan states that ministry staff will remain on continuous alert, NGO volunteers will be trained in techniques to contain avian flu and a campaign will be launched to raise public awareness. The plan also includes precautionary measures such as increasing stocks of Tamiflu, the only known treatment for human cases of bird flu. Some 2.2 million courses of the drug are to be distributed among hospitals, while more than 4,000 pieces of artificial respiratory equipment are being imported for those who contract the disease.

According to the ministry’s strategy, the Egyptian Veterinary Medical Service will work with the Ministry of Agriculture to supervise the vaccination of poultry against bird flu. Specialized committees will be formed to inspect chicken farms all over Egypt and take samples to guarantee that the vaccination program is being followed.

Newspapers protest media law

Over two dozen independent and opposition newspapers refused to publish on July 9 to protest a draft press law that the government bills as a reform but journalists say puts new limits on press freedom. The bill, which won preliminary approval in parliament, eliminates imprisonment as a penalty for some media offences, but continues to allow judges to impose jail terms for journalists who allege financial corruption by officials or state employees. The law also increases the maximum fines that can be imposed on reporters for offences such as libel.

While the government has said the bill is a step towards democratic reform, the opposition, including members of the Muslim Brotherhood, said it was another blow for reform and showed the insincerity of pledges by President Hosni Mubarak to allow more political freedoms and end custodial sentences for publishing offences.

Turkish textile firms set up shop

Minister of Trade and Industry Rachid Mohamed Rachid announced that 23 Turkish companies would start operation in the textile industry in Egypt during 2006. Turkish companies Kibas and Atatex obtained approvals from the Industrial Development Authority (IDA) earlier this year to launch ready-made and textile plants in Egypt at a total investment cost of $200 million. In addition, Egypt’s Nile Clothing Company is working with a number of Turkish investors to launch a new ready-made garment joint venture valued at $600 million.

IBM lands real estate registration deal

A consortium led by IBM Egypt beat out nine local and international alliances to win a unit-based real estate registration deal valued at £E 15 million. The project calls for the registration of 22 million units over seven years as part of the government’s initiative to boost mortgage activity and stabilize real estate ownership. The consortium will carry out the scheme in Egyptian urban areas in phases. The first phase of the scheme will cover nine Egyptian urban communities, including Sixth of October City, Al Obour, Al Shorouk, Nasr City, Maadi and Dokki, among others. The second phase is expected to include the North Coast, Hurghada and Sharm Al Sheikh.

Poor nations stand firm at WTO

A group of large developing countries refused to compromise on the issue of industrial import tariffs at the World Trade Organization (WTO) meeting in Geneva last month. The meeting was an attempt to salvage the WTO’s Doha round, but deep differences divided the EU and US from 11 big developing countries – including Brazil, India, Indonesia, Egypt and South Africa – which said in a statement they were being asked to make cuts of 60-70 percent to their industrial goods tariffs, far more than rich countries, whose tariffs are already generally low. Countries fear that big cuts to such tariffs would threaten local industries. But the US and the EU are seeking the cuts in exchange for scaling back some of their barriers to trade and subsidies in agriculture, a key export sector for many developing countries.

Banque Misr settles $1.65 billion in bad loans

Banque Misr has reached a settlement with its clients over $1.65 billion of loan defaults over the past three years. Bank chairman Mohammed Barakat noted that the value did not include the settlement agreement with Arab Contractors Company reached earlier this year, covering £E 2 billion of outstanding loans with credit facilities of 20 years. Barakat reasserted Banque Misr’s commitment to settle the majority of its loan default cases, particularly in the manufacturing industry where the bank has suffered from large defaults.

Businesses divided over economic outlook

Some 51.2 percent of private businesses surveyed were optimistic about the current economic situation, according to the Strategic Economic Trends 2006 report issued by the Al-Ahram Center for Political & Strategic Studies. The annual report, which provides a critical assessment of the Egyptian economy and expectations of the business sector for future economic performance, polled a sample of 126 private sector companies in Cairo, Giza, Alexandria and Tanta representing the country’s main economic sectors. The survey found that 41.6 percent of the companies surveyed indicated expansion of their businesses, against 34.4 percent which reported cuts, while 24 percent said their businesses remained unchanged.

The report was highly critical of the privatization process, charging that recent deals such as Omar Effendi and Egyptian American Bank (EAB) were the “worst robbery in Egypt’s history.” It was equally criticial of the government’s new policy of including investments directed to the oil sector and the receipts from the sale of public assets to foreign companies to the total foreign direct investment (FDI) figure.

Mortgage refinance company launched

The Central Bank of Egypt (CBE) and 24 private and public financial institutions have jointly established a new mortgage refinance company in an attempt to address the shortage of long-term funds in the housing market. The Egyptian Company for Mortgage Refinancing (ECMR) has been created with initial capital of £E 200 million and the World Bank is extending support with a loan of $37 million (£E 213 million) as well as technical assistance.

CBE holds a 20-percent stake in the company, with the balance held by domestic and foreign banks and specialized mortgage companies, all of which are either currently involved or plan to participate in the mortgage finance market. The International Finance Corporation (IFC), the private sector lending arm of the World Bank, may also join the project as an equity partner. ECMR will bridge the funding gap by providing secured loans over a period of 20 years to banks and mortgage companies. Mortgage providers can in turn employ funds from ECMR to extend additional loans of up to 20 years to homeowners.

Egyptian ship caught in crossfire

An Egyptian merchant ship carrying cement from Damietta to the Syrian port of Tartous was struck and set ablaze by a missile or artillery shell off the Lebanese coast on July 14. The Cambodian-flagged Moonlight was 35 kilometers off the coast of Lebanon when it was hit, well outside the five-kilometer blockade Israel has imposed on the Lebanese coastline. Conflicting accounts indicated the ship was struck by a shell from an Israeli naval vessel enforcing the blockade, while others indicated it was struck by a Hezbollah rocket during an attack on a nearby Israeli warship, Spear, which was severely damaged the same night after being hit by a land-to-sea missile.

The ship’s 12 crewmembers were rescued by a passing merchant ship owned by the same company and taken to Syria for medical treatment before returning to Cairo. The Moonlight’s Egyptian owner valued the ship and its cargo at $2.5 million.

DP World to invest in port

Dubai Ports World plans to invest the equivalent of £E 50 billion to develop the port and associated infrastructure at East Port Said. Approximately £E 20 billion will be invested to develop the container terminal and another £E 30 billion will be spent on port facilities serving ship and container movement through the Suez Canal. Negotiations, which began about two months ago, are expected to conclude soon.

DP World is one of the world’s fastest-growing marine terminal operators, with ports in 30 countries. The UAE-based company recently agreed to subcontract the operations of six US ports it acquired during the takeover of Britain’s P&O to appease worried US lobby groups. The company is nevertheless pressing ahead with its expansion, and is reportedly drawing up plans for an IPO.

Mubarak has no plans to appoint vice president

President Hosni Mubarak said recently there was no need to appoint a vice president, suggesting he will leave open the post. Analysts and the opposition Muslim Brotherhood said that by not appointing a vice president, Mubarak strengthened the chances of his son, Gamal, becoming leader.

Mubarak, president since 1981, has not said who might succeed him, but has promoted Gamal, 42, to one of the most senior posts in the ruling party.

Discrepancy in privatization proceeds explained

Minister of Finance Youssef Boutros-Ghali has answered inquiries about the missing £E 13 billion of privatization proceeds after the issue was raised in parliament. He explained that the discrepancy is due to the fact that some of the privatization proceeds do not go to the treasury because they belong to other state-owned companies and banks with stakes in the privatized companies. He noted that this procedure was recently amended and starting from FY 2005-06 the full amount of privatization proceeds will be recorded as revenues in the government budget’s entry, then expenditure items will be entered.

Total privatization proceeds since FY 1996-97 have amounted to £E 35.7 billion, while net proceeds amounted to £E 24.2 billion after payment of £E 11.5 billion to banks and companies with stakes in privatized enterprises.

Crew of Egyptian cargo ship stranded in US

An Egyptian cargo ship and its crew of 29 have been stranded in Charleston, South Carolina since late June after it was seized for being unseaworthy. The Edco was ordered by a US federal court last month to be held until the company that owned the ship could respond to a lawsuit filed by Hong Kong-based Grand Max Marine Ltd., which contracted with the Edco’s sister ship, the Edco Star. Reportedly, the Edco Star, carrying powder to make cement from China to Spain, was found to be unseaworthy at the Suez Canal on May 29 and remained under detention.

Grand Max is seeking $4 million because the company is losing money on the undelivered goods, according to the lawsuit. The Edco was being re-supplied in Charleston for a scheduled trip to South America when it was seized. As none of its Egyptian sailors has a visa, they have been ordered to remain on board while the suit plays out, which could take several months.

Cement, steel monopolies under fire

Responding to appeals by consumer groups, Minister of Trade and Industry Rachid Mohamed Rachid has urged the Egyptian Competition Authority to start an investigation into the alleged monopolistic practices of Egyptian cement and steel rebar producers. “Consumers have complained about unjustifiable price increases in the two vital commodities to the detriment of construction activities,” he said in a statement.

Analysts say rising cement, steel and iron prices have pushed up the prices of other construction-related materials such as paints and ceramics.

Orascom’s Iraq license extended

Orascom Telecom Holding (OTH) announced that its Iraqi GSM operation, Iraqna, has been granted a three-month interim license extension through the end of September on conditions similar to its original license. Iraqna will continue to pay a “revenue sharing” fee of 13 percent of gross revenues, minus amounts paid to the Iraqi Telephone & Post Company and other licensed mobile operators for interconnection and access services.

Film draws ire, calls for censorship

Over 110 MPs have protested a new film that breaks cultural ground by depicting a gay romance. Emaret Ya’qoubian (The Yacoubian Building) profiles an affair between the editor of a French-language newspaper and a police officer, while following the lives of Cairenes in a downtown building.

Parliament has agreed to form a committee to review the film and decide which parts should be censored.

Suez Canal’s nationalization commemorated

On July 26, Egyptians marked the 50th anniversary of the nationalization of the Suez Canal, often seen as a decisive moment in the country and region’s history. In 1956, President Gamal Abdel Nasser nationalized the Suez Canal, which was dug by Egyptian slave laborers in the mid-1800s for British and French shareholders. It is believed that more than 125,000 Egyptians died while digging the canal by hand.

Nasser nationalized the canal in 1956 after the US and Britain failed to live up to promises to help fund the Aswan High Dam, needed to control Nile water flooding and to generate electricity for industrialization. Britain, France and Israel then invaded Egypt in what has become known as the Tripartite Aggression. The aggression ended when the US publicly intervened.

Today the Suez Canal provides employment for 25,000 Egyptians and is one of the country’s main sources of hard currency, generating $3.4 billion in revenues in 2005.

Housing demand exceeds supply

Egypt is suffering from a wide gap between demand and supply of housing units, a recent report by the Ministry of Investment states. The report argued that the improvement in disposable income and low interest rates had led to an increase in housing demand, which amounted to 350,000 units annually. Housing supplies, meanwhile, totaled just 200,000.

The report suggested that closing the gap requires more effective mortgage activity and a legal ownership regulation system. Egyptian real estate wealth is estimated at £E 270 billion, including 3 million units of unused capacity, which accounts for 20 percent of the total.

In a related story, the Central Bank of Egypt (CBE) sealed an agreement with National Bank of Egypt (NBE) and Egyptian Arab Land Bank to launch a £E 1 billion housing fund to finance the construction of 500,000 low-cost housing units to be built over the next six years. The units will cost less than £E 50,000 and mortgages will be made available to buyers.

Poultry import restrictions lifted

The Egyptian government eased restrictions on poultry imports in an effort to reduce prices in preparation of the food rush that often precedes the fasting month of Ramadan. A ban on the import of frozen poultry, eggs and egg power has been in place since October 2005 in effort to prevent the spread of avian bird flu. The government is also debating suspending import duties on fish and meat until the end of the year.

Egyptian food consumption of staples including chicken, fish, meat, sugar, tea and nuts skyrockets during Ramadan and is often accompanied by an increase in the prices of basic commodities. It is estimated the prices of staples increase by as much 60 percent in the months leading up to the holy month.

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