Business monthly June 08   EDITOR'S NOTE COVER STORY EXECUTIVE LIFE VIEWPOINT IN PERSON INSIDE AMCHAM IN BRIEF MARKET WATCH SUBSCRIPTION FORM IN DEPTH CORPORATE CLINIC ADVERTISING RATES REGION NOTES DOORKNOCk 2008 THE CHAMBER Search Business Monthly | Back Issues

Australian live cattle exports resume

Australia will resume live cattle exports to Egypt after a two-year freeze following allegations of cruel treatment by Egyptian importers. The resumption, however, is subject to strict conditions. Egyptian importers must demonstrate that cattle are being handled according to international standards. All cattle must now go through a new feedlot and abattoir at Ain Sokhna port, described as a “high-quality” facility by Australian state officials.

Australia exported about 200,000 head of cattle a year to Egypt before exports were suspended two years ago. In February 2006, an Australian news documentary captured images of cattle at a Cairo slaughterhouse having their eyes poked out and tendons slashed as a way of restraining them prior to slaughter, as opposed to the use of the more humane steel restraint box that Australian exporters had provided.

Australian cattle exports could reach up to 30,000 heads this year, according to a spokesperson for Australia’s live animal exporters.

Gov’t tightens steel price controls

The Ministry of Trade & Industry (MTI) has issued a decree requiring steel producers to set a maximum resale price for steel coming from their factories. Decree 919/2008 is an attempt to stop distributors and retailers from gouging consumers. Last month, Ezz Steel, Egypt’s largest steel producer, said it had set ex-factory steel prices at LE 5,700 per ton. Retailers, meanwhile, were reportedly demanding more than LE 8,000 per ton.

According to the decree, producers will be required to provide MTI with a maximum resale price at the beginning of each month, enabling the ministry to monitor and determine which distributors or retailers are overcharging consumers.

Accusations of unjustifiable price hikes by producers and merchants have surrounded the steel sector for months. The prices for finished and intermediate steel products – such as rebars and billets – have skyrocketed, partly due to increased international demand caused by a boom in infrastructure development and real estate demand in emerging markets, particularly eastern Europe, China, India and the Gulf.

Egypt consumed approximately 4.9 million tons of steel in 2007, about 15 percent more than the previous year.

New license plates to be issued

New license plates will be issued to vehicles registered in four governorates – Cairo, Giza, Qalioubiya and Alexandria – beginning August 1 as part of a plan by the Ministry of Interior to improve licensing regulation. The new license plates use a combination of letters and numbers to identify vehicles, as opposed to the current system, which uses numbers only. Ministry officials say the alphanumeric combinations allow each of the 26 million registered vehicles in Egypt to have a unique identification sequence. Previously, vehicles in different governorates often shared the same number.

The new plates will be manufactured by the national mint and will contain a number of features to prevent counterfeiting, such as a laser-inscribed eagle, the emblem of Egypt. Different classes of vehicles will be distinguished by the color code of their plates.

Owners of currently licensed vehicles can apply starting in August for new plates, or can swap their old ones at the time of their next scheduled license renewal date. The ministry plans to take the new scheme nationwide by 2009. It is also working to create a database of information for all registered vehicles in Egypt.

Oil ministry to review gas export prices

Petroleum minister Sameh Fahmy has announced that his ministry will review its natural gas export contracts to consider aligning prices with international levels as global energy prices have soared over the last few years. While he did not name any countries, a gas agreement with Israel is believed to be among those under reconsideration.

Prime Minister Ahmed Nazif stated last month that he had informed Israeli officials of his government’s desire to raise the price of the natural gas it sells to Israel. His comment comes on the heels of vehement public objection to Egypt’s natural gas exports to Israel. Under the terms of an agreement signed in 2005, Egypt is to deliver 1.7 billion cubic meters of natural gas per annum over 20 years to Israel through a pipeline that runs from Al Arish to the Israeli port of Ashkelon. The gas began flowing earlier this year.

NTRA extends fixed-line bidding

The National Telecommunication Regulatory Authority (NTRA) has extended the bid deadline for Egypt’s second fixed-line license to July 29. The previous deadline was June 19.

The new landline license will end Telecom Egypt’s monopoly on fixed-line calling. The NTRA issued a request for proposals for the license in February after a three-year delay, attracting several Egyptian and international operators. The regulatory body said last month in a statement that it had extended the bidding deadline to allow more time to complete negotiations on a connectivity agreement with the country’s three mobile operators before choosing a second operator. The agreement will establish fees for calls between fixed and mobile lines.

Eurobond scheduled for July

Egypt plans to offer a Eurobond in July of up to $2 billion, according to finance minister Youssef Boutros-Ghali. A Eurobond is a foreign-issued bond underwritten by an international syndicate and traded outside of its home country. The issuance was originally scheduled for the first quarter of 2008, but was delayed due to global economic jitters.

In related news, the parliament has lifted the tax exemption on government bonds and treasury bills issued after May 5. Interest accrued on government bonds is subject to taxes beginning July 1. The rule change applies to domestic as well as foreign holders of government debt.

Mobile operators block ‘anonymous’ users

The National Telecommunication Regulatory Authority (NTRA) requested that mobile phone operators block service to anonymous subscribers as a public security measure. Vodafone, Mobinil and Etisalat have reportedly started disabling text-messaging capabilities for anonymous subscribers. The measure has affected several hundred thousand customers who did not register their names and addresses when they bought phone lines.

The NTRA is now requiring that all subscribers submit basic information about themselves, including full name, mailing address and a copy of their national ID or passport. Those who fail to provide this information will have their lines deactivated. While critics say this is a measure by the government to monitor the activities of political opposition, the NTRA has argued that requiring basic subscriber information is a normal international practice.

Gov’t adds 17 million ration cardholders

The government has made an additional 17 million people eligible for ration cards and doubled the amount of rice they can purchase in an attempt to buttress spiraling food costs. Providing for the extra cardholders will cost the government LE 1.6 billion per year, according to the Ministry of Social Solidarity.

The monthly allowance of basic foodstuffs has increased. Each beneficiary is now entitled to buy 2 kg of rice – double the previous limit – in addition to 2 kg of sugar, 1.5 kg of oil and 50 grams of tea for LE 15.

Some 55 million Egyptians are now covered under the ration card system. It is the first time that new cardholders have been added to the country’s ration card registry since 1988.

Bidders line up for bank stake

State-owned Banque du Caire will go on sale at the end of June, investment minister Mahmoud Mohieldin has announced. The government expects to sell up to 67 percent of the country’s largest lender in a public auction. An additional 28 percent will be offered in an initial public offering on the Egyptian stock exchange. Bank employees will receive the remaining 5 percent, he said.

The government had intended in 2005 to merge Banque du Caire with Banque Misr, another state-owned bank. The merger, however, failed to materialize over concerns about the size of Banque du Caire’s debt sheet, then estimated at LE 12 billion. In July 2007, the government announced that it had opted instead to sell the bank to a strategic investor.

Banque du Caire, the country’s third-largest bank, has about a 6-percent market share in terms of total assets and deposits. Financial institutions competing for a stake in the bank include UK’s Standard Chartered, Saudi Arabia’s Samba Financial Group, National Bank of Greece, Dubai’s Mashreqbank, and a consortium of Saudi Arabia’s Arab National Bank and its Jordanian affiliate, Arab Bank Group.

Tourism firms rapped over bus accident

The government suspended the operations of three tourism companies after a tour bus carrying their clients was involved in a fatal accident in South Sinai. Nine people were killed and 28 injured when a tour bus overturned and caught fire while traveling to Sharm Al Sheikh on May 1. Six Russians, a Ukrainian, a Romanian and the Egyptian back-up driver died in the accident.

The Ministry of Tourism revoked the operating licenses of Azure Travel, Nasr Travel and Infinity Transport pending an investigation into their accountability for the accident. It was the first time for the ministry to take firm action following bus accidents involving tourists.

CBE pushes interest rates up further

On May 8, the Central Bank of Egypt (CBE) raised interest rates for the third time this year to combat rising inflation rates. The annual inflation rate in April reached 16.4 percent, a three-year high. The CBE lifted its overnight deposit and lending rates by 50 basis points to 10 percent and 12 percent, respectively.

Private schools lose tax-exempt status

The government has revoked the tax-exempt status of private schools, requiring these institutions to pay a 20-percent tax on profits. Minister of Education Youssry El Gamal said that schools are not allowed to pass on the cost of the tax through higher tuition fees. Schools that wish to raise fees must first seek the approval of the General Directorate of Private Education, he said.

The tax revenue generated will help pay for the 30-percent salary increase for state employees, effective May 1. Private schools represent 8.5 percent of the 41,000 schools in Egypt.

Gov’t mulls coal-fired power plant proposal

The government is considering implementing a proposal to construct a coal-fired power plant on the Red Sea coast. The 5,000-megawatt (MW) plant would be part of a broader project, which would include infrastructure for handling and storing coal. The total cost for the project is estimated at between $6 billion and $7 billion.

Egypt is considering alternative ways of expanding its electricity generating capacity to meet its growing energy demand. The Electricity Holding Company is aiming to increase the country’s electricity capacity an average of 3,000 MW per year in the period 2013 to 2027.

North Coast land earmarked for grain production

The Ministry of Agriculture & Land Reclamation has earmarked an extra 200,000 feddans of agricultural land on the North Coast for food crops. The project aims to plant 135,000 feddans of barley and 65,000 feddans of wheat to lower dependency on imports of these cereal crops amid rising international prices.

The total area of cultivated land in Egypt is about 8.6 million feddans.

Anti-monopoly law amended

The Shura Council has approved amendments to Egypt’s competition law aimed at stiffening fines for anti-competitive business practices that harm consumers. Revisions to the Law of Protection of Competition and Prohibition of Monopolistic Practices 3/2005 increase the maximum fines for violating the law to either 10 percent of a company’s products total value or LE 50 million, from LE 10 million. The council also raised the minimum fine for violation of the law to LE 100,000, from LE 30,000.

The amendments were first proposed by Minister of Trade and Industry Rachid Mohamed Rachid in January as part of a plan to overhaul the legal framework for doing business in Egypt to protect consumers and ensure market oversight.

Exported gas to flow northwards

Egypt has signed a memorandum of understanding (MoU) to supply the European Union with 2 billion cubic meters (bcm) of natural gas following the completion of the Arab Gas Pipeline, which is expected in 2009, EU officials said. The announcement was made following a meeting on May 5 in Brussels between EU officials and representatives of Egypt, Syria, Jordan, Lebanon, Turkey and Iraq.

The trans-Arab pipeline currently runs from Egypt to Syria via Jordan and has a capacity of 10 bcm per year. It is anticipated that the pipeline will be extended to Iraq and Turkey by 2009.

The agreement will help achieve the EU’s goal of diversifying its energy supply to lessen its reliance on Russian natural gas. The planned Nabucco pipeline, which will be constructed from Turkey to Austria to supply the EU with gas from the Caspian basin by 2011-12, will have a capacity of 30 bcm. It is anticipated that Egypt’s contribution of 2 bcm per year to Europe will enter this pipeline in Turkey.

Parliament revokes free zone privileges

Egypt has canceled the free-zone privileges of energy-intensive companies as part of a bill approved by parliament on May 5. The amendment revokes the tax and customs duty exemptions for 39 companies in five industries: steel, fertilizers, petrochemicals, natural gas liquefaction and natural gas transport. An exception was made for newly established companies in these industries that allows them to import machinery duty-free through 2011.

According to a statement by the ruling National Democratic Party, the privileges were no longer necessary because of the high profits these companies have made recently as a result of receiving gas and electricity at subsidized rates while international energy prices have soared.

Approximately 1,100 companies in Egypt employing a total of around 233,000 workers have free-zone privileges.

Central bank announces BOP surplus

Egypt’s balance of payments (BOP) had a surplus of $4.9 billion for the period July 2007 through March 2008, the Central Bank of Egypt (CBE) has announced. The surplus has increased by $1.8 billion compared to the same period one year earlier, when it was $3.1 billion. A number of factors contributed to the increased surplus, notably including a rise in foreign direct investment (FDI) of $2.3 billion, from $9 billion in the comparable period a year earlier.

Traffic law amended

The People’s Assembly (PA) approved amendments to Traffic Law 66/1973 during a vote on May 21. A draft of the amended traffic law was approved by the Shura Council early last month, an approval that was followed by debate on the amendments in the PA’s Transportation Committee and the Defense & National Security Committee.

The amended traffic law contains a number of new provisions, including making full trailers illegal, as they are a leading cause of accidents in Egypt. The Ministry of Interior estimates that the country’s 20,000 semi- and 37,000 full-trailers were responsible for 31 percent of the accidents on Egyptian roads in 2007. Fines for driving a full trailer, following a four-year grace period, will range from LE 5,000 to LE 20,000, or one month in prison.

Another amendment forbids the licensing of taxis over 20 years old. A fund established by the Ministry of Transport will provide loans to help drivers of these vehicles replace their vehicles. A four-year grace period has been offered.

Airport overhaul to boost capacity

The Borg Al Arab International Airport, located 40 kilometers from Alexandria, will be outfitted with a new terminal capable of handling one million passengers a year. The Japanese Bank for International Cooperation is providing a $55 million loan to be used for the upgrade. The improved airport is expected to supplant Al Nozha Airport as Alexandria’s main airport by 2010.

Telecom Egypt helps build undersea cable

Telecom Egypt (TE) will help build a $700 million undersea cable network connecting Europe, the Middle East and India. An international consortium of 16 telecommunication companies, including TE, signed an agreement on May 7 to build the first direct, high-bandwidth fiber-optic submarine cable to run from the UK to India.

TE also signed a $50 million contract to sell fiber-optic pairs to the project in the section under its control, which links the Red Sea and Mediterranean (TE Transit Corridor).

The 15,000-kilometer system is expected to become operational in 2010, and will connect 13 countries in three continents. It will also provide diversity for broadband traffic.

The other telecommunications companies investing in the project are AT&T, Bharti Airtel, BT, C&W, Djibouti Telecom, Du, Gibtelecom, IAM, Libyan Post, Telecom & Information Technology Company, MTN Group Ltd., Omantel, PT Comunicações SA, Saudi Telecom Company, Telkom SA Ltd. and Verizon Business. Alcatel-Lucent and Tyco Telecommunications will construct the cable system.

Fertilizer plant in Damietta stirs debate

Controversy continues to swirl around the construction of a fertilizer plant near Damietta. Local area residents, environmentalists and politicians are objecting to plans by EAgrium, the local subsidiary of Canadian fertilizer maker Agrium, to build a nitrogen fertilizer plant with an annual capacity of 1.3 million tons of urea and 100,000 tons of ammonia.

They argue that the $1.4 billion complex will cause damage to the environment and the tourism industry, a claim EAgrium publicly disputed at a press conference in Cairo last month. Greg McGlone, EAgrium’s chairman, downplayed concerns over the factory’s environmental impact, adding that the project will generate revenue for the local economy and boost the supply of fertilizer.

McGlone denied rumors that EAgrium is considering a new location in Ain Sokhna, explaining the location was selected for its proximity to the Damietta port and natural gas feedstock. About 35 percent of the factory has already been constructed, costing the company $500 million, he said.

In April, the government halted construction on the facility after a grassroots campaign formed and began voicing its opposition. A parliamentary fact-finding mission charged with assessing the plant’s environmental impact was due to submit its findings to the People’s Assembly by the end of May.

British tourists stranded in Sharm

Over 350 British tourists were stranded in Sharm Al Sheikh for almost 48 hours when their plane, scheduled to depart on May 25, experienced technical difficulties. Repairs were delayed due to problems getting the necessary parts to the grounded aircraft, and subsequently the passengers refused to board the plane. A second plane was sent to take them back to the UK, which they reached on May 27.

Submit your comment

Top