MONTHLY OUTLOOK. Regulatory Watch. Highlights REGULATIONS AND ECONOMIC

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1 REGULATIONS AND ECONOMIC MONTHLY OUTLOOK Issued on MARCH 1, 219 The Regulations and Economic Monthly Outlook provides insight on the direction of the Government and policy related matters such as stakeholder updates, government initiatives, and news highlights. The report highlights important topics that have an impact on different business sectors. It also features a Special Focus section that sheds light on a key topic of the month. Nour Mortada nour.mortada@ngage-consul ng.com Regulatory Watch Highlights President s Approval Phase Parliament s Approval Phase Pre- Parliament Approval Phase Ministerial Drafting Phase Consumer Protection Law Real Estate Tax Law Cybercrime law Soverign Wealth Fund Public Procurement Law Amendments: Income Tax Law Constitutional Amendments Supreme Council for Medicine and Medical Technology Law Local Administration Law Criminal Procedure law Water Resources and Irrigation Law Amendments:Unified Building Law Law of Reconciliation of Building Violations SME Law New Traffic Law New National Media Authority Law Labor Law Food Safety Law Data Protection Law Protection of Competition and Prohibition of Monopolistic Practices Law Amendments: Economic Courts Act Customs Law E-Payments Law FRA Operational Autonomy Law Insurance Law Consumer Credit Law Amendments: Mineral Resources Law New Tax Procedures and Tax Filing Law Amendements: Real Estate Tax Law Franchise Law Real Estate Developers Regulation Law Egypt-Sudan electricity grid connection project is set to begin its first-phase trials in March. Paving the path for the realization of the $6-7 billion upon the completion of the project. Egypt has been chosen to host the 22 Sustainable Blue Economy water security conference. A Russian delegation will visit Sharm El Sheikh and Hurghada airports soon to run a final security check to decide on resuming direct flights. An Egyptian delegation comprised of Investment Minister Sahar Nasr, Finance Minister Mohamed Maait and Suez Canal Authority (SCA) Chairman Mohab Mamish met with the South Korean PM to discuss boosting the bilateral economic ties. Hyundai Heavy Industries, Daelim Industrial, Dohwa, GS E&C, Samsung Heavy Industries and Hyundai Engineering & Contracting were among companies that expressed interest in increasing investments in Egypt. 1

2 Consumer Credit Law The Consumer Credit Law has been recently approved by the Cabinet. The Law is supposed to regulate the retail financing and consumer credit. In the draft, consumer finance is defined as any activity or operation aiming to fund purchases of consumer and durable goods and transportation vehicles. The bill is supposed to create a federation for non-banking consumer finance and require companies to obtain a license from the Financial Regulatory Authority to sell goods on installment. All consumer finance players will be subject to the legislation if it passes, but retailers and manufacturers are subject to it only if more than 2% of their annual sales are made on installment plans. Stakeholder Updates Lieutenant General. Kamel El Wazir Minister of Transport Dr. Assem El Gazzar Minister of Housing, Utilities and Urban Communities FRA Autonomy Law The Cabinet of Ministers has recently approved the Financial Regulatory Authority draft Law. This law is supposed to give the Financial Regulatory Authority (FRA) technical, financial and administrative autonomy from the government, it was previously subject to oversight from the cabinet. The draft suggests that the FRA submits an annual report that includes its activities and performance of the non-banking financial services industry to the president, prime minister, and House speaker. Policy Watch - Ministry of Trade and Industry has agreed to pay EGP 7.8bn worth of overdue export subsidies. This statement came after the discussions with the Egyptian Businessmen Association (EBA) regarding the new export incentives program that on which the Ministry has been working on. The new program that is still under construction will focus on the ways in which exporters can increase their value added, as well as incentivize businesses to operate in Upper Egypt and to develop shipping and logistics operations. - The House of Representatives has preliminarily approved amendments to the constitution. 48/96 members voted in favor of the changes, which amounts to more than the required two-thirds majority. The amendments include the extension of the Presidential term, the establishment of a Supreme Judicial Council that is headed by the President. The proposed changes also empower the President to appoint and remove the prosecutor general and bring back an Upper House to the Parliament. - GoE is currently embarking on a new tax and non-tax revenues strategy to help cut the budget deficit to % over the next 3-4 years. The tax revenues are expected to exceed EGP 1tn, through; - Improving the tax collection process aiming at increasing tax receipts from 14.6% to 18-2% of GDP. - Introducing amendments to the tax legislation in order to be aligned with the international standards. - Incentivizing the informal sector to be part of the formal economy through VAT discounts and access to subsidized finance and insurance. 2

3 The non-tax revenues would increase through: - The state s privatization program - Raising the prices of a number of services and commodities - Amending the Mineral Resources Law to make the best use of Egypt s natural resources (since the amendments aim at removing the current oil & gas production sharing agreement and moving to a tax, rent and royalty model) - Capitalizing on incentivizing the informal sector to join the formal economy. The government is currently studying to exempt SMEs from up to 8% of their current tax burden for three years. Taxes will be apportioned into a flat rate in addition to a variable rate according to the revenues of the businesses for 3 years as follows: Annual Revenues Flat annual tax rate Exemption Variable Rate (1% - Exemption) Up to EGP 2k EGP 2, 8% 1% of current taxes EGP 21-k EGP, 47% 3% of current taxes EGP k 1 mn EGP 1, 7.% 92.% of current taxes - In May, the Ministry of Finance will make electronic payment of government fees exceeding EGP obligatory. By April, the ministry will have installed around 22 thousand ATMs and points of sale (PoS) across government service offices to help in the collection process. 3

4 Economic Updates International Reserves USD bn Jan 42. Feb 42.6 Mar 44. Apr 44.1 May 44.2 Jun 44.3 Jul 44.4 Aug 44.4 Sep 44. Oct 44. Nov Current Account Balance USD mn / / / / 217 Dec Trade Balance Service Balance Investment Income Balance Current Transfers Current Account Balance Jan Feb / / 217 Commentary Egypt closed USD 4 bn worth of eurobond issuance and the offering was x oversubscribed. The issuance was made up from three-tranches USD 7 mn in five-year bonds, USD 1.7 bn in 1-year bonds, and USD 1. bn in 3-year bonds, carrying yields of 6.2%, 7.6%, and 8.7%, respectively. The revenues from the bonds are used to support FX reserves, payoff obligations and support the state budget. The oversubscription is a positive sign; reflecting more trust in the Egyptian Economy Revenue from Tourism is predicted to rise by as much as 2% (USD bn) of GDP in the upcoming years if the number of arrivals continue to rise exponentially and reach their pre-21 levels; which will help with relieving some of the burden in the current account deficit. The EGP has strengthened against the USD and that was driven in January by positive inflows, owing to the issuance of treasury bills. Remittances from Egyptians living abroad are significantly positive. Trade Balance USD bn There are a few risks surrounding the economy, including: FX debt has reached around 3% of GDP in FY217/18; which means that the government s financial position is exposed to fluctuations in the exchange rate / / / / 217 Trade Balance Eports Imports / / 219 I Q1 - Rapid increases in global commodity prices will increase the burden on the state budget; this is because an increase in the subsidy bill will have to take place accordingly. Headline and Core Inflation Oct Nov Dec Jan Feb Mar Apr MayJanJun Jul Aug Sep Oct Nov Dec Headline Inflation Core Inflation 4

5 Special Focus: LAS - EU Summit On the 24th of February, President Abdel Fatah Al-Sisi inaugurated the first European Union-League of Arab States summit. The summit was attended by the 28 EU Member States and the 21 countries of the League of Arab States (excluding Syria; since its membership was suspended in 211) and the heads of the two entities. The summit was held mainly to discuss stronger regional cooperation as the key to finding common solutions to common challenges. The members of the summit stressed on the role that women, youth and civil society can play in order to create new opportunities; including the strengthening of economic cooperation and committing to the SDGs. The top agenda topics were strengthening cooperation towards security, conflict resolution and socio-economic development throughout the region. They agreed on developing a concrete agenda especially in the fields of trade, energy, science, research, technology, tourism, fisheries, agriculture and other mutually beneficial areas. Aiming at creating wealth, increase growth rates and reduce unemployment to better respond to their citizens needs. Leaders also reaffirmed their commitment to defend multilateralism and the rules-based trading system. President Al-Sisi expressed his desire to attract further EU investments and held several meetings with European officials on the sidelines of the summit, inter alia; a meeting with the Cypriot President to discuss energy cooperation and with the Italian Minister to discuss investment opportunities in the Suez Canal Area Development Project. Other political issues were also discussed especially on the developments in the Syrian, Libyan and Yemeni cases and the ways by which progress can be achieved on the grounds of human rights, humanitarian law and the protection of civilians. This is in addition to the reaffirmation of the common positions on the Middle Eastern Peace Process (including the case of Jerusalem and the illegality of Israeli settlements). In the same manner, threats to international and regional peace and security were tackled; including terrorism, radicalization, destabilizing actions, proliferation, illegal arms trafficking and organized crime. As well as the preservation of the global nuclear non-proliferation architecture, and the objective of a Middle East region free of weapons of mass destruction and their means of delivery. One of the prominent issues discussed was migration and terrorism, officials have agreed on increasing the cooperation regarding these two matters without drafting a Turkey-style agreement with the EU on migration (where the EU demanded a tighter border control in Turkey in exchange for aid). It is worth noting that there have been no formal agreements were reached on the issues discussed due to the fact that Brexit has not been finalized yet. The leaders reached a consensus in the summit that the EU-LAS Summit will be periodical, where the next summit will be held in Brussels in 222.