A New Chapter in Egypts History A Popular Leader with an - - PowerPoint PPT Presentation

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!

2 REAL GDP GROWTH

FY09 FY14 4.7% 2.1% FY20 6% FY09 FY14 16.5% 10.7% FY20 8% FY09 FY14 21.6% 24% FY20 below 20% FY09 FY14 9.2% 13.3% FY20 9%

INFLATION POVERTY UNEMPLOYMENT FDI (USD BN)

FY09 FY14 8.1 4.1 FY20 14‐15

NEWLY ESTABLISHED CO.

FY09 FY14 6292 8246 FY20 Xxxx

IMPLEMENTED INVS. (EGP BN) PS SHARE(%)

FY09 FY14 197 58% 265 62% FY20 Xxx 75%

FISCAL DEFICIT/GDP

FY09 FY14 6.4% 12.2% FY20 Below 10%

Aggressive targets, yet achievable with Egypt’s new formula…

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Location

SOLID FUNDAMENTALS

Inherit sizable demand High youth contribution Diversified economy Moves towards stability

“NEW EGYPT” CATALYST

Structural adjustment Investment Stimulus plan Clear Governance

Growing investor Confidence Rising Investment

STRONG & SUSTAINABLE GROWTH

Legislative reform

… especially as Egypt already kicked‐off with its checklist

Commitment to Political Roadmap

Constitution referendum Presidential election Parliamentary election kicking‐off March 2015

Consensus building, moves toward stability and improved security Structural Adjustment

Taxation reform Phasing out oil subsidies

• Investment stimulus plan
• Legislative reform

New regulations and amendments settling investors disputes Payment of dues to oil companies Full coverage of FX backlog

Social welfare program

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Commitment to political timeline with a more inclusive scene ‐ a conductive investment climate

High turn out ratio confirms consensus building…

• 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: Supreme committee for elections

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…which reduced strikes, helping reinstate stability

41.2% 58.7% 46.4% 51.9% 32.9% 38.9% 47.1% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% Ref Mar‐11 Parliamentary Elec 2011 Presidential Elec ‐1st round 2012 Presidential Elec ‐2nd round 2012 Constitution Ref 2012 Constitution Ref 2014 Presidential Elec 2014

Source: ECESR

Commitment to political roadmap

Source: Official sources and Ministry of Investment database

100 200 300 400 500 600 700 800 900 1000 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

Feb‐14 May‐14 Jun‐14 Jun‐14 Jul‐14 Mar‐15 Apr‐15 May‐15

Constitution Referendum PM Mehleb appointment Presidential election President Elect El Sisi took office Cabinet reshuffle Parliamentary election Long‐standing cabinet

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. 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.

Targets a reduced oil subsidies bill… New oil prices

Source: Ministry of Finance

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Source: Ministry of Finance Source: Official sources

…and a narrowed fiscal deficit

Gasoline Old tariff (EGP/Liter) New tariff (EGP/Liter) % increase Octane 95 5.85 6.25 6.84% 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%

17.8% 18.2% 16.8% 20.3% 20.4% 17.9% 15.9% 0% 5% 10% 15% 20% 25% 20 40 60 80 100 120 140 FY09 FY10 FY11 FY12 FY13 FY14 FY15B EGP bn Oil subsidies Oil subsidies/expenditure 6.4% 8.1% 9.8% 10.8% 13.7% 12.8% 10.0% 0% 2% 4% 6% 8% 10% 12% 14% 16% 50 100 150 200 250 300 FY09 FY10 FY11 FY12 FY13 FY14 FY15B EGP bn Fiscal deficit Fiscal Deficit % GDP

…more of long‐standing policies to restore confidence

EXPANDING THE POOL OF REVENUES

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

• n wealthy individuals with annual income above

EGP1mn are vivid examples – which are expected to add EGP13.5bn to revenues.

Source: Ministry of Finance

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Source: Official Sources

New tax reform Low tax revenue/GDP

New tax 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

• ver 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

• n

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%

• n

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. 14.0% 13.9% 13.4% 14.3% 13.0% 15.1% 10% 11% 12% 13% 14% 15% 16% 100 150 200 250 300 350 400 FY10 FY11 FY12 FY13 FY14 FY15B EGPbn Tax revenues Tax revenues/GDP

…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
• il 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 Ministerial dispute settlement committee

Source: Ministry of Investment

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9 1 4 3 1 2 3 23 3 3 3 1 10 5 10 15 20 25 Real‐estate & const Tourism Agriculture Oil, Gas & Petrochemcials logistics Mining & Fert

• thers

Total Contracts No of disputes solved Source: Ministry of Investment

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

Investment stimulus plan to support growth

First stimulus package ‐ EGP29.7bn

• 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.

Source: Ministry of Planning & Ministry of Finance

Second stimulus package – EGP34bn

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Projects EGP bn Construction of 50 k housing units 10.40 Government investments 5.60 Government contribution in Suez Canal corridor project 2.00 Others 4.60 Investment stimulus 22.60 Minimum wage implementation 10.00 Allocation to subsidies and social grants 1.40 Social justice stimulus 11.40 Total 34.00 Projects EGP bn Upgrading roads and transportation network 6.74 Supporting and developing national industry program 4.35 Upgrading water, sanitation, and natural gas networks 4.06 Social housing program 3.05 Supporting power networks 2.92 Settling contractors’ arrears with the government 2.2 Upgrading health services network 0.63 National land reclamation program 0.52 Investment stimulus 24.48 Social justice stimulus 5.26 Total 29.74

Source: Ministry of Planning & Ministry of Finance

Mega Projects– EGP401bn

Source: Ministry of Planning & Ministry of Finance

Projects EGP bn 1 million housing unit 280 New Suez Canal 60 3600 KM of roads infrastructure 36 1 million Feddan project 25 Total 401

Social welfare program to ensure sustainable growth

The government embarked upon several social measures including:

• 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.

Source: Ministry of Investment Source: CAPMAS & Ministry of Planning

10.0% 10.5% 11.0% 11.5% 12.0% 12.5% 13.0% 13.5% 14.0% 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14

High unemployment rate High poverty rate

0% 5% 10% 15% 20% 25% 30% FY05 FY07 FY09 FY11 FY13 FY14e

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Signs of improved investment indicators started to show

Newly established companies

• 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.

Source: Central Bank of Egypt

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Loans growth Net portfolio investment and FDIs

Source: GAFI Source: Central Bank of Egypt 0% 2% 4% 6% 8% 10% 12% 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 YoY

100 200 300 400 500 600 700 800 900 1000 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

‐10,000 ‐7,500 ‐5,000 ‐2,500 2,500 5,000 7,500 10,000 12,500 15,000 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 1QFY14 1QFY15 USD mn FDI Net Portfolio investments

Announced FDI include,

Source: Official sources

Sector Company Country of Origin Project Targeted Investment (USD) Food/Infrastructure/financial services EBRD EU Development projects EUR1.25bn Food & Beverages 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 Oil & Gas Trans Energy Corp Canada Oil and Gas 115.5mn Snopec China Exploration 8bn Gaz de France France Exploration 300mn Dana Gas UAE Exploration 270mn 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

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External sector showed some improvement, stabilizing FX

• 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.

Source: Central Bank of Egypt and CAPMAS

International tourist arrivals

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A stable NIR supports FX market Net international reserves stabilized

Source: Central Bank of Egypt Source: Bloomberg and Central Bank of Egypt

‐ 200 400 600 800 1,000 1,200 1,400 1,600 1,800 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

k arrivals

5.0 5.5 6.0 6.5 7.0 7.5 8.0 5 10 15 20 25 30 35 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 EGP USDbn NIR EGP/USD 1.0 1.5 2.0 2.5 3.0 3.5 4.0 5 10 15 20 25 30 35 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 Months USDbn NIR Imports coverage

…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.

Source: Bloomberg

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USD 5‐year CDS

100 200 300 400 500 600 700 800 11‐Jun‐12 1‐Jul‐12 21‐Jul‐12 10‐Aug‐12 30‐Aug‐12 19‐Sep‐12 9‐Oct‐12 29‐Oct‐12 18‐Nov‐12 8‐Dec‐12 28‐Dec‐12 17‐Jan‐13 6‐Feb‐13 26‐Feb‐13 18‐Mar‐13 7‐Apr‐13 27‐Apr‐13 17‐May‐13 6‐Jun‐13 26‐Jun‐13 16‐Jul‐13 5‐Aug‐13 25‐Aug‐13 14‐Sep‐13 4‐Oct‐13 24‐Oct‐13 13‐Nov‐13 3‐Dec‐13 23‐Dec‐13 12‐Jan‐14 1‐Feb‐14 21‐Feb‐14 13‐Mar‐14 2‐Apr‐14 22‐Apr‐14 12‐May‐14 1‐Jun‐14 21‐Jun‐14 11‐Jul‐14 31‐Jul‐14 20‐Aug‐14 9‐Sep‐14 29‐Sep‐14 19‐Oct‐14 8‐Nov‐14 28‐Nov‐14 18‐Dec‐14 7‐Jan‐15

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.

Source: Ministry of Investment, Central Bank of Egypt and CAPMAS

Stagflation risk subsides

2.6% 2.2% 2.2% 1.5% 1.0% 1.4% 2.4% 3.7% 6.8% 6.4% 5.2% 7.4% 8.7% 10.1% 11.7% 10.3% 8.4% 11.20% 12.5% 13.0% 13.2% 13.3% 13.4% 13.4% 13.4% 13.3% 13.1% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12.0% 13.0% 14.0%

• 0.2%

0.8% 1.8% 2.8% 3.8% 4.8% 5.8% 6.8% 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 GDP YoY growth Annual headline CPI Unemployment

15

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