Breakfast Wrap: Egypt’s 83 million Goldmine, IMF Slams Yemen, GCC Economy

There’s one aspect of Egypt’s business climate that will keep attracting buyers despite the uncertainty and political turmoil – that is the nation’s 83 million consumers; a goldmine for a business that wants to gain a strong foothold in the Middle East quickly.  

For European banks that have been hit by the Eurozone crisis, restructuring plans are underway, and that means offloading assets it can’t afford.

French bank Societe Generale is the latest to sell its Egyptian unit.  Yesterday afternoon it agreed to sell its Egyptian asset (NSGB) to Qatar National Bank as part of a larger restructuring plan for about $2 billion. A hefty sum considering most economists are putting a black mark against Egypt.

There’s more acquisitions on the way. BNP Paribas is seeking bids for the sale of its Egyptian retail arm, which is expected to generate between $400 million and $500m, and last year Standard Chartered came close to acquiring the Egyptian assets of Greece’s Piraeus Bank.

QNB didn’t over pay, says Emad Mostaque, strategist at investment bank Religare Noah in an emailed note this morning. But that’s good news, he explains:

Soc Gen agreed to sell their 77% stake in NSGB to QNB at 35.54 EGP for $1.97bn, valuing NSGB at $2.7bn. 

This is well below the close price of 39.35 EGP, but in line with the 6 month average price.  The acquisition at this price is clearly positive for our Top Pick QNB, who will take the lead in the funding of the $20bn of FDI in Egypt promised by Qatar.

It shows continued conservatism from Qatar on not overpaying for acquisitions by its national champions, something we have recently been a bit worried about. 

◊◊◊

Elsewhere the news isn’t as rosy for Egypt. Gold miner Centamin has said it would would suspend operations at its only producing mine, located in Egypt, due to a short-fall in working capital and the inadequate availability of diesel at the mine.

The company said fuel supplies to the gold mine had reached critical levels.

The problem started because apparently Centamin owes about $65 million for diesel supplied from the Egyptian government between Dec 2009 and Jan 2010. Egypt said it wouldn’t supply additional diesel until the payment was made. Centamin says the claims are “illegal”.

EGPC has had a multitude of disasters related to the country’s expensive energy subsidy system.  Debts are rising to international/local oil companies and banks and high-ranking executives in the energy sector say EGPC is about to be bailed out by the state-run bank National Bank of Egypt.

In the meantime, Centamin was hit with a court case in October which declared its rights to operate the Sukari mine as illegal. It subsequently suspended gold exports pending a ruling.

Today, the company said it had obtained clearances to start exports again but it was still waiting for prior approval by the Minister of Finance.

“This approval has been urgently sought, but has not yet been forthcoming,” Centamin said.

A combination of mismanagement (on its own part for not paying for fuel, but also on the part of the Egyptian government for not approving exports) and bureaucracy has left Centamin unable to sell its gold.  It’s situations like these that worry foreign investors. 

Shares in Centamin are down almost by half since late October.

◊◊◊

“Yemen is Egypt on drugs”, said one tweet yesterday as news emerged that the IMF had urged Yemen to make drastic changes to its energy subsidies which account for 8% of GDP and benefit mostly the richest.

The international bank did not hold back in its criticism of Yemen, whose energy subsidy system is appalling:

This large untargeted subsidy benefits the richest segments of the population disproportionately. Furthermore, the lower prices lead to substantial inefficiencies and smuggling, and contribute to environmental deterioration.

To further improve governance and transparency, the authorities are encouraged to further adjust these prices and launch other reforms to increase efficiency in the energy sector, while broadening the social safety net and increasing compensation for the poor through well-targeted cash transfers.

Egypt’s energy subsidies actually account for close to 10% of GDP, so perhaps it’s Egypt that’s on drugs.

◊◊◊

If you have lived in the Gulf, this is a story that is glaringly obvious.

Some guys from Booz & Company, the consultancy firm, write in this FT article that “for the past four decades, the Gulf Cooperation Council states have shown remarkable economic growth, yet they are still challenged by a volatility they need to eradicate if they are to diversify away from oil and become powerhouse emerging economies.”

Surprise, surprise. The GCC states make a lot of money and don’t know how to spend it.

One of the many reasons the authors give for this “volatility” is the high proportion of people employed in unproductive, but highly-paid public sector jobs.  Booz & Company give some interesting recommendations including enforcing value added taxes, and creating opportunities for collaboration as a block instead of outright competition.

Sounds a little too optimistic for the GCC where rivalry extends from city to city, let alone state to state.




Post a Comment

Your email is kept private. Required fields are marked *