MONTHLY OUTLOOK. Regulatory Watch. Cybercrime Law. Highlights. Initiatives & Partnerships REGULATIONS AND ECONOMIC

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1 REGULATIONS AND ECONOMIC MONTHLY OUTLOOK AUGUST 2018 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. Farrah Elmoghazi farrah.elmoghazi@ngage-consul ng.com Nour Shafik nour.shafik@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 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 Amendements: Real Estate Tax Law New National Media Authority Law Labor Law E-Commerce Customs Law Food Safety Law President Abdelfattah El Sisi is reportedly scheduled to meet with Ethiopian Prime Minister Abiy Ahmed on the sidelines of the China-Africa Cooperation Forum in Beijing. H.E. Sameh Shoukry and Intelligence Chief Abbas Kamel have already met with Ahmed in Addis Ababa and discussed the two states joint vision. Sudanese Minister of Agriculture Abdallah Soliman has agreed to look into lifting the ban on Egyptian agri imports following his meeting with Egyptian Minister of Agriculture Ezzedein Abu Steit. The Ministry of Finance has issued a global tender for the automation of operations of the tax authority on August 30 for local and international companies. The Ministry expects the full automation of the tax authority within one year. Cybercrime Law Cybercrime law aims to combat crime through regulating the use of the internet in Egypt in order to prohibit the illicit use of information networks and it legalizes internet censorship. The Parliament Communications Committee approved 3 articles of the draft law which led to the government blocking hundreds of websites. Prior to that in May of 2017, the Government had already blocked several websites including: Mada Masr, Daily News Egypt, and Al-Jazeera. The state authority responsible for investigating cybercrime is yet to be determined. The law stipulates that any individual responsible for operating or owning a website or a social media account that encourages cybercrime may face up to 1 year of imprisonment and a fine of EGP 20,000 to EGP 200,000. Websites posting material threatening to national security can be blocked through a judicial process. Administrators of blocked websites can appeal the decision 7 days post its implementation. Initiatives & Partnerships The National Management Institute has a launched a program to reinforce General Management Reform Initiatives under the auspices of the Ministry of Planning. This program comes as a part of a series of initiatives which target capacity building and strengthening the management skills of those participating. The program took place on August 1 and 2 at the American University in Cairo. The Ministry of Investment and International Cooperation has launched an initiative to support the top 10 companies with Corporate Social Responsibility projects. The purpose of the initiative is to support the continuity of the business sector s role in the field of capacity building and social development. 1

2 Real Estate Tax Law The Real Estate Tax law is considered part of the government s plan to increase revenues. the Law stipulates that there should be committees responsible for tallying and assessing the properties to ensure proper assessment. as per Article 13, the assessment will be carried out through a study on the following: width of the street, construction materials, history of construction, and nature of the district. The Economic Committee stated that several elements of the law should be revised during the next session, such as the exemption fee seeing that the real estate market has changed since According to Minister of Finance Mohamed Maait, the Government is currently looking into improving the mechanisms of implementing the Real Estate Tax Law.The Ministry of Finance and Ministry of Tourism are studying the implementation of the real estate tax on the hospitality sector. it is expected that the revenues of the real estate tax collections could reach up to.8 EGP billion. Residential and non-residential units are subject to 10% tax. Reconciliation in Building Violations Law The Reconciliation in Building Violations Law aims to put an end to disputes between individuals and municipalities regarding building violations. Building violations in Egypt have exceeded 2. million violations. The Housing Committee completed a draft that is scheduled to appear before the House of Representatives at the upcoming session. The Committee also suggested the attainment of EGP10,000 for each violation temporarily for the period of 6 months until rectification. The law stipulates the formation of a committee in each governorate to determine the value of the meter and the violation according to the city. According to Article 3, a request for reconciliation is to be submitted post implementation of the executive regulations of this law with a period that does not exceed 3 months. MP Hammam Al Adli, Head of the Complaints and Suggestions Committee states that reconciliation with violations on historical sites should not be granted. He also added that reconciliation of violations committed after the adoption of the law should not be granted as well. All revenues will be directed to the state treasury with the following allocation of revenues: 1% is allocated to spending on social housing and infrastructure projects as per article 4 of Law No. 119/2008, and a % allocation to be granted to Committee members and administrators referred to in the law. Policy Watch The Ministry of Finance has been studying the economic implication of issuing a new coin category valued at 2.00 EGP. The Ministry of Finance has established a new committee within the Ministry which aims to tackle and address all the private sectors concerns on the new Health Insurance Law. The committee is headed by the deputy minister of fiscal policy affairs, Mr. Ahmed Kouchouk. According to the Minister of Planning, Follow-up and Administrative Reform, Dr. Hala El Saeed, the ministry is focusing in reforming the method of preparing the general budget of the state to be based on budget of programs and KPIs system. The Ministry of Communication and information Technology in cooperation with the Ministry of Trade and Industry as well as international bodies such as the World Bank and the United Nations Conference on Trade and Development has launched a strategy to strengthen the electronic trade sector in Egypt, to make it one of the leading in the region. Stakholder Updates General Sherif Seif El-Dine: New Head of Administrative Control Authority Mohsen Adel: new Head of GAFI Kamal Negm: New Chairman of the Customs Authority Rady Abdel Maaty: New Head of Consumer Protection Authority Tarek Kashwaa: new Technical Officer at the Ministry of Trade and Industry Ihab Abo Aish: Deputy Minister of Finance for Treasury Affairs Sherine Sabbagh has resigned as first undersecretary of the Minister of Trade and role is yet to be filled Dr. Amr Abdel Salam Kandil Shaat Chairman of the National Authority for Tunnels Dr. Tamer Essam Deputy Minister of Health for Medical Affairs Ambassador Hamdy Sanad First Under Secretary for African Affairs at the Ministry of Foreign Affairs 2

3 Economic Updates International Reserves USD bn Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Commentary Due to the government no policy intervention in the FX market and the economic, increase in the performance of the BoP and more economic stability, Egypt s international reserves continues to rise steadily in 2018 leading to record 44.4 USD bn in July 2018, the highest in record. The service balance has improved this year compared to last year, despite the decline in the FDI s witnessed in the first Q3 2017/2018 compared to Q3 2016/17. On the other hand, Tourism inflows has increased by 160.7% same period and Suez Canal revenues by 13.8% Source of FX USD bn / / / 2017 Jul-Mar16 / 17 Jul-Mar17 / 18 Remittances FDIs Tourism Suez Canal Trade Balance USD bn / / / 2017 Jul-Mar16 / 17 Jul-Mar17 / 18 (20) 18.8 (40) (60) Import Export Trade Balance Moody s has changed the outlook on the GoE long-term issuer ratings to positive from stable and has affirmed the B3 issuer ratings. Moody s ratings rational was based on the following reasons: - Egypt s success in implementing its economic and monetary reforms in light of the improved in the international reserves and shifting Egypt s FX sourcing from direct investments rather than external debt Contribution to Inflation Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mrc-18 Apr-18 Food Prices Retail Prices Services Annual Inflation Headline and Core Inflation Price Competitiveness due to the floatation of the EGP - Renewed Natural Gas exports from Zohr Field which is expected to start in Movement in the arrears payments to IOCs - Regulatory reforms focusing on gaining investors trust such as the bankruptcy law and land allocation mechanisms Egypt s tourism revenues have increased by 77% in the first half of 2018 to reach 4.8 USD billion. Government officials forecast that this figure will reach 9 USD billion by the end of this year. 40% 3% 30% 2% 20% 1% 10% % Jan-00 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Core Inflation Oct-17 Nov-17 Dec-18 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Headline Inflation Jun-18 Jul-18 Annual Headline inflation has witnessed a downward trend to 13.% in July 2018 from 14.4% in June 2018 post the fuel subsidy cuts. The Central Bank of Egypt s target is to keep the inflation rate within the 13% bracket during Q July s inflation rate was mainly driven by regulated price adjustments including increases by 27%, 9.3% and 7.8% in electricity, tobacco and alcohol respectively. 3

4 Special Focus: Automotive Sector The foreign currency crisis, the EGP devaluation, consecutive subsidy cuts and rampant inflation have hit the automotive sector hard. Total market sales in 2017 stood at 13,632 units, 31.6% lower than However, the automotive market can rebound considerably in 2018 after the relative absorption of the effect of economic reforms. Market sales in the first four months of 2018 stood at 49,062 units, 36% more than the corresponding period of 2017 but still 26% below the number recorded in Several factors will come to play throughout 2018 and in 2019: the impact of further subsidy cuts, the impact of new trade agreements such as the Mercosur and the progress of passing and implementing the Automotive Directive. These info graphs demonstrate the aforementioned points Total Automotive Market Sales ( Unit : Cars ) Sep.16 17,3 Oct.16 18,468 Impact of EGP Devaluation Nov.16 12,220 Dec.16 12,0 Inflation exceeded 30% Jan.17 9,404 Feb.17 6,30 Mar.17 10,611 Apr.17 9,11 May.17 10,273 Jun.17 10,077 July.17 13,337 Aug.17 14, Sep.17 12,361 Oct.17 12,491 Nov.17 12,220 Dec.17 14, Mar.18 13,311 Apr.18 13,90 Jan.18 10,347 Feb.18 11,44 4

5 Automotive Sales by Segment Jan-April XXXXXX Buses Trucks Passenger Cars, Distribution of Passenger Cars Sales Jan-April 2018 ( Unit : Cars ) Compact 1L 46 Small 1L : 1.3L 77 Small / Medium 1.3L : 1.L,796 Medium I 1.L : 1.6L 20,92 Medium II 1.6L : 2L 14 Large 20L 9 Light SUV 2L 6,4 SUV 2L 98 Origin of Passenger Cars Sales Jan-April 2018, USA 14 % EU 17% China 4% South Korea 30% Japan 3% Amic Egypt - Auto Motores Markets Information Council