On Monday, Kristalina Georgieva, the International Monetary Fund’s managing director, said the fund was at a “very advanced stage of discussing staff level agreements, whether it would be within days or weeks, hard to predict but it will be very soon,” she told Reuters, referring to loan negotiations with Egypt and Tunisia. She added that the fund is “looking at sizable programmes. The exact size is always determined through negotiations and finalised with the authorities.”
The loan, which Egypt has requested back in March, will be one of the sources of much needed hard currency. Alongside the loan, the Egyptian government is aiming to attract foreign investment to rebalance its finances. Later this month an investment conference is scheduled to bring together the business community and the government to iron out challenges facing the private sector. The conference comes amid harsh local economic conditions induced by the global economic crisis. President Abdel-Fattah Al-Sisi said on Tuesday that with hard work Egypt is capable of overcoming the current challenges.
The war in Ukraine has exacerbated the shortage of foreign currency. Capital inflows have dried up, particularly to the local debt market. Net foreign reserves decreased to around $33 billion at the end of August, dropping from around $41 billion in January 2022.
In September, Al-Sisi urged the government to organise an economic conference to highlight the challenges facing the economy and find solutions. Matta Bishai, head of the Internal Trade Committee in the Importers’ Division of the Federation of Egyptian Chambers of Commerce is holding out high hopes the conference will be able help the economy out.
“All stakeholders — the government, importers, manufacturers, exporters, and the Central Bank of Egypt (CBE) — should sit together, talk to each other, set economic priorities and reach a consensus on the policies needed to achieve them,” he said.
“Even if the conference recommends actions that involve short-term losses for some, we are open to challenges provided there is a clear, transparent strategy with a clear timeline to end the crisis,” he said.
Until then, the market is dealing with some shortages.
“Some of the items in your order are not available.” The SMS Noha Mustafa received from her online shopping application covered seven of the 11 items she was expecting to be delivered from her local hypermarket. They included food, detergents, and batteries, both imported and locally produced.
There is a deficit in imported materials across the board — food, stationary, furniture, cars, pet food, and raw materials — said Bishai. He explained that the CBE regulations issued in February oblige importers to open a letter of credit to pay for their purchases, which means paying the full value of the imported items upfront in dollars. But a scarcity of foreign currency, and the fact Egypt imports 70 per cent of its needs, banks cannot cover the dollar needs of importers. Nor will banks accept the dollars importers acquire outside official channels.
Lately the CBE has been trying to relax its demands of importers, but businessmen are hoping for more because according to Bishai, commodities worth billions of pounds sit in ports while the local market suffers from low supply and high prices.
The poultry industry is among the victims of current arrangements, threatening the availability of essential food items, such as chicken and eggs. However, Mahmoud Al-Anani, chairman of the Federation of Poultry Producers, said the CBE, cabinet, and the Ministry of Agriculture promised the federation that a breakthrough is expected this week.
Grain mills are also affected. This week the Cereals Chamber of the Federation of Egyptian Industries wrote a memo to the Ministry of Industry complaining that mills were coming to a standstill because of a lack of wheat to grind.
Speaking on television Karim Abu Ghali, a member of the chamber, said 700,000 tons of wheat imported by the private sector are sitting at ports because they cannot access the hard currency to release it. He said if the CBE made $50-$60 million available enough wheat would be released to cover the needs of the market for 10-15 days. At a time when the price of wheat has fallen to pre-Ukraine war levels the scarcity of hard currency has caused its local price to jump to LE11,500 per ton whereas a more realistic level would be around LE9,500. Abu Ghali estimated that at the moment 60-70 per cent of mills cannot find the wheat to grind, and for three to four weeks no new wheat has entered the market. He added that suppliers are reluctant to conclude new contracts until goods already held in ports are released.
In repose to the scarcity of flour, private bakeries are selling smaller loaves rather than raising the unit price. Poultry producers also complain that feed is selling for triple its real value.
September inflation rates have yet to be released but experts believe they will be higher than August’s 14.6 per cent, itself the highest monthly level since November 2018.
“Traders are hiking prices, but who can blame them if the bulk of their capital is frozen in the form of goods stuck in ports? They need to increase the price of the stocks they have in order to cover their expenses,” Bishai said.
When importers do not know when they will be receiving their purchases, or at what rate of exchange, they factor the variables into the price.
The CBE is allowing a gradual devaluation of the pound which has lost almost 25 per cent of its value since March. The official exchange rate reached LE19.6 on Monday.
Bahaa Al-Adli, head of Badr Investors’ Association and of Arab Integrated Industries, says the current crisis is the worst he has seen. His company, which manufactures lamps and lighting systems, has inputs that have been sitting at ports for three months.
“When the world is suffering semiconductor shortages we have them but are unable to retrieve them from ports,” he said. As a result, production capacity is at a minimum and workers are given leave.
Industries across the board are affected. The head of parliament’s Economic Committee told a talk show on Sunday that 15,000 factories had shut up shop due to the dollar shortage.
Diaa Helmi, secretary-general of the Egyptian-Chinese Chamber of Commerce, is an advisor to a company that clads buildings. He said essential raw materials have been held up for six months. Not only must the company pay storage at the ports, it is also facing penalties for the late delivery of projects. Even when the company procures dollars, he said, the bank refuses to accept hard currency that is not obtained through official channels. But at a black market rate of LE23.5 it would still be cheaper for the company to purchase its own dollars than absorb the extra costs of continued delays.
Al-Adli believes the CBE should allow manufacturers and importers to procure their own hard currency. “Even if we get it on the black market at a much higher rate than the official one, it spares factories from total stoppages which would be far more costly.”
President Al-Sisi promised last week that the import restrictions would be dealt with within maximum two months.
“It is not clear how this can be done,” said Bishai. He told Al-Ahram Weekly on Monday that a hearing session of parliament’s Industrial Committee for Importers’ Division representatives is planned for Wednesday to discuss ways to deal with the deadlock.
*A version of this article appears in print in the 6 October, 2022 edition of Al-Ahram Weekly.