Untamed inflation rising EGYPT'S inflation rate recorded a 19-year high by reaching 19.7 per cent in May, compared to its level in May 2007; it stood at 16.4 per cent in April. "The sharp rise reflects the initial effects of fuel and other price increases announced by the government on 5 May, as well as the continuing impact of a food price spike in the first months of the year," commented EFG- Hermes. The investment bank expected the second round of hikes in fuel prices to continue pushing prices higher, until its effects pass through the economy. A breakdown of inflation figures in May reveals that transport prices rose by 13 per cent, while tobacco costs gained 12 per cent. According to the government's Central Agency for Public Mobilisation and Statistics (CAPMAS), the increase in fuel prices seems to have affected food prices, rising by 27 per cent when compared to May 2007, and by 3.6 per cent than levels in April 2008. Hermes calculated that it would take two to three months for fuel price increases to have an effect on food prices, as happened when the government adjusted octane prices in July 2006. However, this time, knock-on effects appeared more quickly. The cost of bread and grains jumped 50.8 per cent and edible oils by 51.2 per cent. Moreover, the price of fruit and vegetables rose by 24.9 per cent and 27.6 per cent, respectively. Hermes said that it had adjusted its inflation forecast to reflect this quicker-than-expected rebound in food prices. Average inflation for fiscal year 2007/08 is expected at 11.7 per cent, a figure which will shoot to 18.3 per cent in fiscal year 2008/2009 starting on 1 July. Market experts believe that the next meeting of the Central Bank of Egypt's (CBE) Monetary Policy Committee on 26 June will increase interest rates as a means to rein in inflation. CBE has raised interest rates three times this year already with the same aim, but the reluctance of commercial banks to follow suit stripped the previous moves of their significance. Raising the roof THE PEOPLE'S Assembly passed the property tax law on Tuesday , following a lot of debates on both the Parlaiments upper and lower houses on the terms of the controversial law. The final draft of the law exempts units with a value under LE500,000 from the new tax. Properties estimated at more than that will be charged a tax of 10 per cent of the unit's rental value. The tax authorities will calculate the property tax by estimating the rental value of each unit and subtracting a maintenance cost as a percentage of the rental value. This will be 30 per cent for residential units and 32 per cent for commercial ones. The process of evaluation will take place every five years. Reservations raised by many MPs during a session held earlier varied, including whether it complies with the constitution. They claimed that the draft legislation contradicts a previous edict by the Constitutional Court prohibiting taxes on undeveloped land plots since they do not yield any revenues, a factor which also applies to housing units. Minister of Finance Youssef Boutros-Ghali responded by saying that such laws are in place since the 19th century and are imposed worldwide. Adding more financial burden to Egyptian households was another shortcoming in the law, according to some MPs. But Ghali responded at the session that a marginal segment of Egyptians will be affected by the law, since only two per cent of the population own units valued higher than LE500,000. He also added that the government, after investigating case by case, would pay the tax if owners are unable to. Another criticism was the fact that the landlord of multiple units, each valued at less than LE500,000 is exempt from the tax, whereas the owner of only one unit valued higher than the ceiling will be taxed. Parliamentarians also suggested that the ceiling bracket should be raised to units valued higher than LE700,000, and that units be reevaluated every 10 years instead of every five. The law will be enforced three years after its approval by parliament. Can't have enough gold DESPITE unprecedented increases in the price of gold, the World Gold Council's (WGC) regional office announced last week that Egypt witnessed an astounding 64 per cent rise in sales during the first quarter of 2008. Gold sales jumped from $392 million in the first quarter of 2007 to $641 million during the same period this year, according to last week's report. Positive sales figures were also found in other Arab countries, recording a 15 per cent increase in the United Arab Emirates (UAE), and a seven per cent growth in the Kingdom of Saudi Arabia (KSA). The report added that the sharp rise in the value of gold, which briefly touched record levels above $1,000 per ounce in mid- March, was a key determinant behind movement in demand on gold in the first quarter. "The big increase in the price of gold resulted in total demand falling from year-earlier levels by 19 per cent in UAE, 25 per cent in KSA and 30 per cent in other Gulf countries," it stated. "There was a notable exception in Egypt, where gold demand increased by 15 per cent to reach a total of 18 tonnes in the first quarter of 2008." The rise in gold prices provoked a surge in both jewellery and investment buying in Egypt due to the widespread belief that the price was going to rise further, noted the report. Moez Barakat, managing director of the WGC, revealed that despite a shortfall in tonnage in recent months, gold was a major attraction to investors during this period of instability, greater inflationary fears and falling dollar thanks to its hedging characteristics. "We believe that investor interest will remain very strong in the near future," assured Barakat. "It is also expected that as the price stabilises, major gold jewellery consumers will adapt to a higher floor in the price." Early indications are that demand in the second quarter of 2008 will be more buoyant than in the first quarter. A smaller CASE TWO small-sized joint stock companies became the first to be listed in Egypt's and the region's first small business stock exchange Nilex last week. A third company is soon to follow suit. The new companies, Al-Badr Plastics and Masria Card have issued a capital as low as LE1.7 million and LE10.8 million respectively. With SMEs contributing 70-80 per cent to GDP in Egypt, the new bourse will not only offer immediate support to small- to medium-sized companies but will also help gearing economic growth, said Maged Shawqi, head of the CASE during a press conference held last week. The aim of the new exchange is to provide the small business with a long-term means of finance with less stringent listing criteria than those adopted by the Cairo and Alexandria Stock Exchange (CASE). Any company that has a paid-in capital more than LE500,000 and less than LE25 million is a candidate for the new exchange. There are no criteria related to turnover, revenue, sales or number of employees or the sector to which the companies belong. Al-Badr Plastics is a packaging company while Masria Card is a provider of IT solutions. Tarek Nour Holdings which applied for listing a week ago is a communication and media group. Companies eligible to be listed in Nilex need to offer 10 per cent of their shares to the market within one year of listing and a minimum of 100,000 shares floated. The company, with at least 25 shareholders when listed, has to disclose quarterly, semi- annual and annual results compliant with the same disclosure rules of CASE. The idea of forming the stock exchange goes back to early 2001 when then economy minister Youssef Boutros Ghali assigned a team to do the research needed to build a bourse for small-sized companies like the South African Altx. However, unfavourable market conditions back then hindered the implementation of the plan. It was only in October 2007 when Minister of Investment Mahmoud Mohieddin rang the bell for the launch of Nilex. The CASE finalised an agreement with the Industry Modernisation Centre according to which the latter will promote for listing in Nilex in addition to providing eligible companies with the listing fees as an incentive to be listed. Naeem Holding is the advisor of the two listed companies. According to the governing rules, listed companies have to be sponsored by an authorised advisor to help the company with market-related issues. So far 10 companies have the authorisation to play this role.
