Breakfast Wrap: Egypt Lives Hand-to-Mouth, Libya Strikes Oil, Tunisia Energy

Big numbers from Egypt yesterday.   Namely, Egypt’s closely watched foreign reserves pot rose $705 million to $15.12 billion in August, from $14.42 billion in July.   The excitement was short-lived however, because the temporary lift was, well, temporary.

The boost came from a $500 million deposit the central bank received from Qatar and by the central bank’s sale of 513 million euros’ ($642 million) worth of euro-denominated T-bills.

Egypt is expecting another $2 billion from Qatar this month, but this hand-to-mouth approach is not helping investor confidence.  Sustainable and long-term investment is needed.

One way is to buoy exports.  One of the most reliable exports Egypt has is cotton.  Last week alone, Egypt’s cotton exporter, Alcotexa, sold 1,513 tons of famed Egyptian cotton. Alcotexa has shipped 77,086.62 tons since last September 2011.

Another way Egypt is trying to cut its deficit is increasing and diversifying the debt it sells.  It did well selling its Euro-denominated bills last week, and yesterday it did well with ordinary EGP bills (domestic banks buy up most of this debt offered by the government – therefore they support Egypt’s government immensely).

That’s all while the pound is still devaluing of its own accord. According to Bloomberg, the pound fell to as low as 6.1072 a dollar on August 31, the lowest since December 2004.  That shows that Egypt’s government are running out of steam to protect the currency.  How long can they go without forcing a devaluation? 

Unfortunately, Egypt is stuck in a vicious cycle of supply and demand.  So, for example, it cannot cut off bread from its people just like that.

Egypt this week bought 355,000 tons of Russian, Ukranian and Romanian wheat in its fourth international tender in three weeks, local Egyptian newspaper Al Ahram reported this morning (Arabic).

The wheat will be shipped for shipment between October 11th and 20th.   Drought concerns in Russia have prompted Egypt to increase tenders to stockpile while it can.  Egypt cannot afford to run out of bread, or it faces a repeat of 1977 bread riots.  But it also cannot afford to continue with this inefficient subsidy system.  

Egypt’s stock market, often a litmus test of domestic confidence in political decisions, has done extremely well considering it was shut for almost two months last year when the uprising began.

Emad Mostaque, of Religare Capital Markets, has always been optimistic on Egypt.  In a note this morning, he says:

Egypt leads the way again rising 9.7% to almost 50% year to date. We think this can continue as foreigners have yet to come into a market still trading at a discount.

Regionally, country’s are beginning to implement changes in subsidy systems. Tunisia is the latest to raise petrol prices and yesterday announced the price hikes. 

Meanwhile, Libya struck gold.  It made an oil and natural-gas discovery in the Ghadames basin about 150 kilometers (93 miles) southwest of the capital Tripoli, National Oil Corp, Bloomberg reported.

And finally, an update on Glencore’s battle with Qatar Holding.  Glencore has said it will stick to the terms of a $33 billion bid for Xstrata, resisting mounting pressure from shareholders to sweeten the offer four days before investors vote.

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