Lunch Wrap: Egypt Rates, OCI Tax Hit, Egypt Electricity Dreams

Later today, the Central Bank’s Monetary Policy Committee will decide whether to change interest rates in Egypt.  Consensus from some economists’ notes this morning point that the CBE will keep rates on hold for the fifth consecutive meeting.   Rates were last raised in November 2011, for the first time since September 2008.

Some reasoning from Pharos Holding brokerage in Cairo here:

The start of high-level negotiations with the IMF over the US$ 4.8bn credit facility, strongly voiced plans by the president/government to strictly adhere to EGP stability and early signs of foreign inflows into the EGP carry trade are factors that support our expectation of a neutral monetary stance.

Orascom Construction Industries, Egypt’s biggest company by market value said its net income fell 28% over the year after paying higher taxes in Europe and costs related to start-ups in Algeria and the US.

The company also said “OCI’s competitiveness was blunted by a 20% increase in the pound’s value against the Turkish lira over two years” – is this a quiet push for devaluation?

Overnight the company also announced a $1.4 billion fertiliser investment in the United States and a purchase of a US Construction firm.

Some interesting commentary from Reuters’ Breakingviews columnist Una Galani on the US decision to write off $1 billion of debt owed to it by Cairo.   Much more than anything, this move will help the Obama administration shore up relations with the Arab Spring nation more than it will benefit the country’s troubled economy, she writes.   “A more efficient form of aid would be for the United States to redirect ongoing financing for Egypt’s military to investment in infrastructure and job creation.”

Egypt has plans to build its largest power plant at a cost of almost $3 billion and will have the capacity that is equivalent to a third of electricity production in Egypt, Zawya reports.

The Egyptian government is building the plant in Samalout in Minya governorate, 300 kilometers south of Cairo, to produce 3,167.04 Megawatts of electricity.    The main two concerns with this project is:

a) will this actually happen? Egypt only last month revived its nuclear power plant plans that is also expected to contribute to electricity generation.  But this plant has been in discussion for more than a decade.

b) to build an electricity plant, Egypt needs more gas to power it, and obviously natural gas shortages at the moment have been the main cause of electricity black-outs, as Rebel Economy has pointed at before.   Some comfort is gained from BP’s latest efforts to pump $11 billion into natural gas exploration in Egypt, but that project won’t reap rewards for several years.

Government statistics show Egypt’s public sector employees continue to be better paid than those working in the private sector, a disappointing statistic when considering the benefits of Egypt’s huge small and medium enterprises on the economy if fully realised.

The report points out that, ironically, those in the state are demanding higher wages and bonuses in line with those they believe are enjoyed by private sector workers.   This report isn’t totally reliable however because it does not reflect wage differences between geographical areas, type of industry, or size of companies.

The wealth of Qatar is again in the spotlight, but this time for one of its bank’s expanding reach in the Middle East.  Qatar National Bank, the state-backed lender of Qatar, is going for acquisitions in the region as it takes advantage of the downsizing of European banks and of Doha’s new-found political clout, Camilla Hall writes in the FT.

It’s not just in talks with Societe Generale to buy the French bank’s Egypt unit, but also has just boosted its stake in Dubai-based Commercial Bank International.

“Doha has both an incentive to help build economic confidence in newly elected regimes and the financial firepower to do so,” Hall writes.

Another sad statistic from the region: Jobless youth numbers in the Middle East are expected to soar to more than 28% in the next five years, the International Labour Organisation (ILO) warns.

The increase will mean the Middle East overtakes North Africa as the region with the highest youth unemployment rate anywhere in the world.

Youth unemployment rates are forecast to rise from 26.4% this year to 28.4% in 2017.

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