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Reports

BY  / 20 December 2023
  • Higher selling prices and volume recovery should bolster EAST’s operational performance over our FY23/24–27/28e forecast period 
  • Machinery leasing and investment income from UTC should also preserve EAST’s profitability and cash distribution capabilities                                                                        
  • We increased our TP by c18% to EGP31.4/share, yet downgraded our rating to N from OW as the stock rallied c45% since our last update

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BY  Heba Monir  /

  • Low FX liquidity is fueling soaring inflation and affecting GDP growth, in our view. We expect an FX adjustment when Egypt improves its FX supply
  • We see the current account deficit turning into a surplus with a moderate expansion in external debt over FY23/24e, impacted by recent rating downgrades by Moody's, S&P, and Fitch
  • We expect the budget deficit to widen to 7.1% of GDP in FY23/24e on higher interest expense and social benefits 

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BY /

  • Imminent inflection point in the GCC to support MENA operations
  • ORAS capitalizes on its U.S. presence, hedges setbacks, and further diversifies its exposure through BESIX
  • We resume coverage on ORAS with a TP of USD6.54/share and an OW rating

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BY  Mariam Elsaadany/

  • Amendments to the Gouna masterplan waive environmental fees, unlock value, and increase ODE’s hospitality exposure
  • ODE enjoys solid profitability in 2023e as the 3Q23 land sale should offset potential FX losses
  • We increase our TP by c42% to EGP15.5/share and maintain our OW rating as we integrate Gouna masterplan amendments in our model 

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BY
  • Higher local cigarette selling prices should support EAST’s operating margins over our FY22/23–27/28e forecast period
  • Machinery leasing income and investment income from UTC should also preserve EAST’s profitability and cash distribution capabilities         
  • We increase our TP by c41% to EGP26.6/share, and upgrade our rating to OW from N. UTC adds EGP2.51/share to our valuation 

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BY  /
  • The market is still digesting new macroeconomic and industry developments, which entails prudent pricing and cost management
  • Despite lowering our gross margin estimates, reflecting inflationary pressures, we expect ARCC to maintain its cost advantage
  • We cut our 2022–25e EBITDA estimates by c12% and TP by c25% to EGP11.2/share and reiterate our OW rating on compelling valuation 

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BY  /
  • A high inflationary environment and the expiry of the PMI under-license agreement results in lower operating margins, despite higher local cigarette selling prices
  • On a positive note, EAST's investment and machinery leasing income from its 24%-owned subsidiary UTC preserves its profitability and  cash distribution abilities              
  • We lower our TP c9% to EGP18.9/share and downgrade our rating to Neutral from Overweight on a higher WACC and the stock price rally

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BY Mariam Elssadany/

  • While sector investment demand benefited from inflation and EGP devaluation fears, currently, it is hurt by lower affordability, cost overruns, and challenging financing
  • We expect further market consolidation following sector conditions and the EGP devaluation; revaluation of assets is currently underway for the acquisition targets
  • We choose PHDC and TMGH as our top picks on sound fundamentals and high potential returns; both stocks trading below the sector’s  2023e average P/NAV of 0.34x

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BY  Monette Doss  /
  • Egypt’s external position vulnerability renders further EGP devaluation accompanied by interest rate hikes necessary, in our view
  • We expect further working capital loan growth, moderate deposit increases, maintained NIMs and pressured asset quality over the rest of 2022e
  • We lower our TP for CIB by c5%, and for CAE by c9% but increase it for ADIB-Egypt by c36%; and maintain an OW rating for all three banks. CIB is our top pick 

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BY  Monette Doss/
  • CIRA’s expansion plan implies increasing registered students and revenue at a 2022–29e CAGR of c13% and c25%, respectively, with some pressure on EBITDA due to rising OPEX
  • Planned annual CAPEX average EGP940m over the next five years with average debt/equity of 1.19x, on our numbers
  • We increase our 12-month target price for CIRA by c15% to EGP21.0/share, as we currently  include New Damietta university in our numbers and maintain our Overweight rating 

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BY  Noha Baraka/

  • Demand recovery was mainly interrupted by higher prices to mitigate higher input costs
  • However, margins should improve in 2H21e on low-interest costs and improved working capital, allowing for good FCF generation
  • We reduce our 12M TP for Obourland c7% to EGP9.26/share, and for Domty c20% to EGP6.73/share while maintaining our OW rating for both on share price dip. Obourland is our sector pick

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BY  Monette Doss/
  • We see tourism and government spending as the main GDP growth drivers. We expect building up inflationary pressures, and moderate EGP depreciation supported by a possible 100-150 bps rate hike in 2022
  • Current account deficit to narrow while debt repayment schedule necessitates seeking additional external funding, in our view
  • We expect the budget deficit to slightly widen to 7.5% of GDP in FY21/22e, with the banking sector financing the bulk of the deficit 

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BY Mariam Ramadan/
  • Polyethylene prices starting to come off record highs, but we expect spreads to remain elevated into 2022
  • Higher working capital needs weigh on debt, but decelerating investments and strong operating cash flows should make room for dividend payments next year, albeit at depressed yields
  • We leave our 2022–25e EBITDA estimates and target price nearly unchanged at EGP6.66/share but upgrade to Neutral on the recent share price slump

 

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Featured

BY /

Eastern Company (EAST EY): The company approved increasing its local cigarette retail prices of Cleopatra, Mondial, Matossian Super, Belmont, and Boston by EGP3.00/pack to EGP30.0/pack, effective 17 February, according to its CEO and managing director and its release. Viceroy and Pall Mall prices increased by EGP8.00/pack to EGP50.0/pack. Cleopatra Box, a ten-stick pack, price increased by EGP2.00/pack to EGP22.0/pack. EAST also increased cigar and molasses prices. The price increase is lower than the increase in tobacco and non-tobacco raw material costs, the CEO and managing director added. (Company release, Mubasher)

Our comment: This comes sooner than our expectation of a retail price increase in 4Q23/24 and slightly lower than our expected increase of EGP4.00/pack. The EGP3.00/pack increase implies an ex-factory price of EGP9.38/pack, up c25% from the latest ex-factory price of around EGP7.51/pack in 2Q23/24 and is justified in our view, considering the recent hike in raw tobacco cost, which peaked at USD7,670/ton in January 2024, according to Brazil tobacco export data from the Ministry of Economics of Brazil, in addition to the increase in non-tobacco raw materials costs.

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By /

Commercial International Bank (COMI EY): The bank’s 4Q23 consolidated net income hiked c83% y-o-y, yet dropped c13% q-o-q to EGP7.23bn, according to its audited financials. The bank is proposing a DPS of EGP0.55 for FY23, pending shareholder approval at an upcoming AGM. (Bank data)

Our Comment: The bank’s net income came lower than our estimate of EGP8.63bn by c16% yet higher than the Bloomberg consensus of EGP6.83bn by c6%. We attribute this deviation to charging a higher-than-forecasted loan loss provisions of EGP3.05bn, an increase of c2.4x y-o-y and c89x q-o-q, exceeding our estimate of EGP223m by c14x. Net interest income grew c65% y-o-y and c10% q-o-q to EGP15.2bn, in line with our estimates of EGP14.9bn (+1.8%), with c32% of it generated from interest income from treasuries. Non-interest income surged c2.6x y-o-y and c38x q-o-q to EGP1.55bn, exceeding our estimate by 5.06x on a hike in services fees, FX gains, dividend income, financial investments, and lower-than-forecasted losses from other operating items. Loan loss provisions hiked c2.4x y-o-y and c89x q-o-q to EGP3.05bn, coming c14x higher than our estimate of EGP223m, as the bank’s management tended to be conservative given the challenges persistent since FY22 on the macroeconomic outlook. The effective tax rate retreated by 8.7 pp y-o-y to 27.8%, given the lower allocation to treasuries. The bank’s ROE increased 13.5 pp y-o-y to 36.4%, yet came 10.4 pp lower than our estimate and 9.47 pp lower q-o-q due to the sizeable balance sheet growth and higher-than-expected loan loss provisions. Regarding the bank’s balance sheet, its net loans grew c21% y-o-y to EGP235bn, in line with our estimates (-0.9%), customer deposits increased by c27% y-o-y to EGP675bn, c5% lower than our estimate of EGP709bn, and financial investments increased c13% y-o-y to EGP270bn, beating our estimate of EGP231bn by c17%. CIB demonstrated resilient CAR of 26.2%, up from 22.7% a year earlier, and improved asset quality with NPLs dropping to 3.59% from 4.86% a year earlier and coverage ratio increasing to 309% from 229% a year earlier. The proposed DPS of EGP0.55/share for FY23 offers a net-of-tax dividend yield of 0.66%, over yesterday’s last price of EGP79.43/share.

 

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By / Sunday

SIDPEC (SKPC EY): The company's 4Q23 net income hiked 31% y-o-y to EGP645m, according to its announced unaudited KPIs. The company’s board postponed the discussion related to contributing USD180,000 in the capital increase of Egyptian BioEthanol Company (EBIOL), according to a bourse filing. (EGX)

 

Our comment: The company reported good results, with net income only missing our estimate by 5%, mainly on c0.5 pp lower-than-expected gross profit margin (GPM) of 26.6% and higher-than-expected effective tax rate. Revenue increased c21% y-o-y to EGP3.46bn and came c1.6% below our estimate. Gross profit rose c4% y-o-y to EGP922m, missing our estimate by c3.4%, as GPM contracted 4.4 pp y-o-y to 26.6%, despite the net positive USD exposure on higher y-o-y USD feedstock cost, and base effect as 4Q22 marked the beginning of the feedstock formula application. NPBT hiked c35% y-o-y EFP903m and came c3% above our estimate, potentially on higher-than-expected investment/other income. The NPBT beat reversed into a 5% net income miss on a higher-than-expected effective tax rate, filtering through a net income of EGP645m, c31% higher y-o-y.  We will comment further on the results after the company releases its detailed audited financials.

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By /

Egypt's external debt increased by 6.16% y-o-y while decreasing by 0.13% q-o-q to USD164.5bn in 1Q23/24, according to the Central Bank of Egypt (CBE)’s data. Long-term debt increased by 5.24% y-o-y, while retreating by 1.70% q-o-q to USD134bn (c82% of total external debt), while short-term debt increased by 10.4% y-o-y and 7.52% q-o-q to USD30.3bn (c18% of total external debt). (CBE)

Our Comment: The 1Q23/24 external debt came slightly lower than our estimate of USD166bn, possibly due to the delay in finalizing the first and second reviews of the IMF’s USD3bn Extended Fund Facility (EFF) and the disbursement of the corresponding two tranches worth a total of USD700m.

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By /Sun

Ezz Steel (ESRS EY): The company recorded a 3Q23 consolidated net loss of EGP509m, reversing a net profit of EGP1.08bn a year earlier, according to its audited financials. (Company data)

Our comment: Despite an in-line operational performance, the company booked a hefty EGP10.8bn FX loss, which we did not account for in our numbers, whipping out its decent operating profit and margin and resulting in a net loss of EGP509m, while we expected EGP4.15bn in net profit, excluding FX losses. Long steel production increased c20% y-o-y to 1.00m tons and came c1% above our estimate, while flat steel production surged c48% y-o-y to 0.59m tons and came c1% below our estimate. Total sales volume rose c18% y-o-y to 1.61m tons, c3% below our estimate. It is worth mentioning that in 9M23, domestic rebar consumption dropped c30% y-o-y to 4.6m tons, reflecting the inflationary pressures that negatively affected local consumption, while ESRS Local rebar sales fell by a lower c16% y-o-y to 1.95m tons, implying a market share of c42%. HRC domestic consumption fell by c17% y-o-y in 9M23, while ESRS 9M23 HRC local sales retreated by c11% y-o-y to 0.69m. On the other hand, the company doubled y-o-y its export-to-total sales volumes to c36% in 9M23, highlighting its comparative advantage as a fully integrated and exporting steel producer. Revenue hiked by c85% y-o-y to EGP41.0bn on higher y-o-y prices in EGP terms and higher volumes, in line with our estimate. COGS increased c66% y-o-y to EGP29.9bn and came c1% below our estimate. Gross profit surged c2.7x y-o-y to EGP11.1bn, c4% above our estimate, on c1 pp higher-than-expected GPM of c27%, c8 pp higher y-o-y. EBITDA increased c2.7x y-o-y to EGP10.3bn and came 7% above our estimate, on c21%lower-than-expected SG&A expenses of EGP1.16bn, c1.8x higher y-o-y. The EBITDA margin expanded by c8.0 pp y-o-y to c25% and came c2 pp above our estimate. EBITDA (USD/ton) increased c42% y-o-y to USD207 and came c10% above our estimate. Net financing costs were flat y-o-y at EGP771m and came c27% below our estimate, on c74% higher-than-expected interest income of EGP843m, c10.0x higher y-o-y, while finance cost of EGP1.62bn exceeded our estimate by c5% and hiked c1.9x y-o-y, reflecting the high-interest rate environment and the increase in the company’s gross debt to EGP67bn, from EGP33bn a year earlier and EGP49bn a quarter earlier. Net other expense increased c11% y-o-y to EGP115m and came in line with our estimate. The company recognized EGP10.8bn in FX losses, slightly offset by a deferred tax asset of EGP2.21bn, filtering through a net loss of EGP509m, reversing a net income of EGP1.08bn a year earlier.

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By / Sunday

Egypt's annual headline inflation decelerated to 34.6% y-o-y in November from 35.8% y-o-y in the previous month, according to data posted by the Central Agency for Public Mobilization and Statistics (CAPMAS). Monthly prices rose 1.3% m-o-m compared to an increase of 1.0% m-o-m in October, the data showed. (CAPMAS) 

Our Comment: November inflation came lower than our estimate of 2.1% m-o-m and 37.8% y-o-y. We believe the decline partially reflects the Egyptian government's initiative to reduce the prices of basic commodities in the local market for six months.  

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By  Mariam Elsaadany/ Mon

Heliopolis Housing (HELI EY): The company signed the final contract for a revenue-sharing project with Mg Developments to develop 77.19 feddans (324,198 sqm) in districts 10 and 11 of its New Heliopolis City land plot and its share of the project's revenue is EGP3.39bn, representing a 32.1% of the project's total revenue, it announced in a bourse filing. The project includes a minimum guarantee for HELI over 14 years, it added. The project will consist of one phase, the company’s IR said. (EGX, Al Borsa)

Our comment: This is the second revenue-sharing agreement closed by Heliopolis Housing for its New Heliopolis Housing plot after it finalized the SODIC East revenue-sharing agreement with SODIC (OCDI EY) back in 2015; however, it's much smaller, representing only c13% of SODIC East land area and only c2% of HELI's remaining land area in New Heliopolis City, based on our calculations. Based on our understanding, the project will be 100% residential. Mg Developments plans to launch it in early 2024, and construction should last seven years. HELI has already provided the infrastructure for the project's land and will not incur additional costs, and the companies still need to secure the required approvals for the project. Despite the agreement's small value, it provides some earnings visibility for Heliopolis Housing and monetizes part of its undeveloped land bank. HELI's share of the new project's revenue implies a total value of EGP10.6bn for the project's revenue and EGP32,616 per sqm of BUA, c7% higher than SODIC East's EGP30,475/sqm of BUA. We estimate the project's land value at c15% of the project's total expected proceeds, lower than an average of c25% in the case of deals involving direct acquisition of land, implying a value of EGP4,892/sqm for the project's land. The implied land value per sqm is lower than the implied value per sqm of residential land in SODIC East's agreement of around EGP6,777/sqm, based on our calculations, which is understandable in our view given SODIC's strong record as a developer, allowing it to maximize the extracted value from developed land plots. The company has not yet disclosed the project's minimum guarantee, while the SODIC East agreement entailed a minimum guarantee of EGP5bn. We initially estimate the project to contribute an NPV of EGP1.73/share for HELI, assuming that HELI will collect its revenue share over two years, equivalent to an NPV of EGP1.83/share and after excluding the NPV of the project's land of EGP0.10/share included in our previous valuation of HELI. If we assume that HELI will collect the EGP3.39bn over four years, the project’s contribution will decrease to EGP1.40/share. 

Our comment: The March inflation comes lower than our estimate of 3.75% m-o-m, and 34.0% y-o-y possibly due to a relative drop in poultry prices after the government increased poultry supply recently.

 

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By  Nesrine Mamdouh/ Sunday, December 3, 2023

Egypt's passenger car (PC) sales increased c15% y-o-y to 6,970 cars in October, versus an increase of c15% y-o-y to 7,887 cars in the previous month, according to a report by the Automotive Marketing Information Council (AMIC). Bus sales, however, dropped c28% y-o-y to 1,012 buses, compared to a decline of c62% y-o-y to 689 buses in the previous month, according to the report. (AMIC) 

Our Comment: Local Pcs sales increased y-o-y for the second consecutive month after eighteen consecutive monthly drops in sales. Initial numbers from the AMIC report point to total GB Corp (GBCO EY) sales of 1,763 cars in October, c18% higher y-o-y, implying that GB Corp's total market share during October was 25.3%, 0.66 pp higher than a year earlier. On another positive note, Hyundai sales significantly surged c3x y-o-y but dropped c49% m-o-m to 556 cars in October, with the y-o-y increase considered the fourth increase in a row. Chery's sales, however, decreased c18% y-o-y and c25% m-o-m to 978 cars. The company sold 136 cars of its Haval brand in October (up c89% y-o-y), yet it did not sell any in September. As for its Changan brand, it sold 93 cars in October versus 41 cars a year earlier and 30 cars in September.

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By Heba Monir /  Tuesday, 5 December, 2023

The Egyptian government downward revised Egypt’s real GDP growth forecast for FY23/24 to 3.5% from an earlier forecast of 4.2%, according to the minister of planning. (CNBC)

Our comment: The revised estimate is lower than our FY23/24e real GDP growth forecast of 4.0%. We expect an improved trade deficit in FY23/24e and a rebound in public investments to drive GDP growth despite expected lower government consumption.

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By / Sunday

Egypt's annual headline inflation decelerated to 35.8% y-o-y in October from 38.0% y-o-y in the previous month, according to data posted by the Central Agency for Public Mobilization and Statistics (CAPMAS). Monthly prices rose 1.0% m-o-m compared to an increase of 2.0% m-o-m in September, the data showed. (CAPMAS)

Our Comment: October inflation comes better than our estimate of 2.6% m-o-m and 38.0% y-o-y. The inflation deceleration partially reflects the government's initiative to reduce the prices of basic commodities in the local market for six months, in our view.

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BY /

In its 21 September meeting, the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided to maintain the benchmark overnight deposit and lending at 19.25% and 20.25%, respectively, after it increased it by 300 bps y-t-d and 800 bps in 2022. Egypt's annual headline inflation accelerated to a record of 38.0% in September from 37.4% y-o-y in August, according to the Central Agency for Public Mobilization and Statistics (CAPMAS) data. Monthly prices rose 2.0% m-o-m in September compared to a 1.59% m-o-m increase in the previous month. On the global front, the US Federal Reserve raised interest rates in July by 25 bps to a range of 5.25-5.50%, a total of 100 bps y-t-d and 425 bps in 2022, with most expectations likely to maintain rates in its meeting next week, according to Bloomberg. Based on Egypt's current economic situation, we present below our expectations for the likely outcome of the 2 November MPC meeting.

 

Our comment: We expect Egypt's inflation to continue rising by 2.6% m-o-m and 38.0% y-o-y in October, similar to September's figure, reflecting supply shortages of essential commodities and products mainly caused by the curbing of importation, exporting some crops and lack of USD availability and the seasonality effect of the partial start of schools and universities' academic year. Moreover, Moody's and S&P downgraded the Egyptian government's long-term foreign and local currency issuer ratings with a Stable outlook. Besides the reasons mentioned by the rating agencies for the rating downgrade mostly related to Egypt's worsening debt affordability, other concerning factors include  (1) the surge in Egypt's 1-year CDS to 2,013 bps from 1,230 in mid-September, (2) the widening of the gap between the parallel and official FX rates to as much as c50% and c30% between the Real Exchange Rate (RER) and Real Effective Exchange Rate (REER) models, based on our calculations, (3) the increase of the inflation differential between the US and Egypt to 34.4% in 4Q23 from 33.8% in 3Q23, and (4) the increase of the 12M yield on US treasuries to 5.42% currently from 4.67% in January 2023 while Egypt offers a negative real yield of 4.0% currently on its 12M T-bills, based on the latest 12M T-bills auction offering a nominal yield of 26.4% compares to a positive real yield of c2.7% on US treasuries. For Egypt's real yield calculation, we used a 15% tax rate for US, UK, and Europe investors) and an average inflation rate of 26.4% for for FY24. We also estimate that the 12M T-bills required return is c28%. On a more positive note, Egypt's overall balance of payment (BoP) recorded a surplus of USD601m in 4Q22/23 and USD882m as well in FY22/23. Net international reserves (NIR) increased by 5.34% y-o-y and 0.12% m-o-m to USD35.0bn in September, and deposits not included in the official reserves increased by c6.4% m-o-m and 3.82x y-o-y to USD5.05bn in September. Egypt's banking sector's net foreign liabilities (NFL) narrowed by USD585bn m-o-m for the second consecutive month to USD25.7bn in August due to a USD995m m-o-m decline in the CBE's foreign liabilities, according to CBE data. Excluding the CBE, the banking sector's NFL widened by USD220m m-o-m to USD16.4bn due to a larger drop in banks' foreign assets (excluding the CBE) by USD868m m-o-m versus a decline of USD648m m-o-m in banks' foreign liabilities. Based on Egypt's economic situation, and although the inflation spike is supply-driven rather than demand-driven, we forecast a total 200 bps policy rate hike before year-end, including 100 bps for the 2 November meeting as we believe that the rate hike may help defend the currency against dollarization and purchases of gold by Egyptian citizens, despite that we would still be in negative real yield territory until inflation normalize again.

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News

BY / Tuesday, 20 February 2024

Egypt signed a USD1.55bn five-year framework agreement with the International Islamic Trade Finance Corporation (ITFC) to finance its imports of petroleum products and food commodities, the minister of planning said. The ITFC also signed a USD30m letter of intent with Banque Misr to finance private sector projects in Egypt and support SMEs. (Bloomberg, Al Mal, Al Borsa)

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BY  / Tuesday, 20 February 2024

The International Finance Corporation (IFC) plans to invest USD1bn in Egypt during 2024 after it invested USD1bn last year, its director for North Africa and Horn of Africa announced. (Al Borsa)

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