A revival in tourism, a return of foreign portfolio investments, the introduction of a new subsidised bread scheme, and a better than expected report by the international ratings agency Fitch Ratings on the Egyptian economy — these were some of the developments the economy witnessed last week.
The good news followed weeks of tension that saw the pound losing 40 per cent of its value to the dollar since the beginning of the year.
Part of the good news is that Egypt’s tourism industry, one of the country’s main sources of much-needed foreign currency, is showing signs of recovery. After a three-year hiatus due to restrictions aimed at halting the spread of the Covid-19 pandemic, Egypt resumed receiving flights from China last week. EgyptAir, the nation’s flag carrier, will operate 13 weekly flights to Chinese cities starting in March.
The cabinet has revealed plans to increase the number of tourists coming to Egypt each year to 30 million by 2028, compared to the 13 million that visited in 2021.
According to a recent report by Fitch, Egypt’s tourism revenues should increase to $13 billion in 2023, 18 per cent higher than in 2022. The number of visitors should increase by 46 per cent to 11.5 million.
On another positive note, the first-ever meeting of the committee that will manage the implementation of Egypt’s State Ownership Policy Document took place last week and included all the ministers concerned as well as representatives of the national wealth fund the Sovereign Fund of Egypt.
The final version of the document was submitted to the government last month, with the state highlighting plans to double the private sector’s role in the economy to 65 per cent by attracting $50 billion of investment over three years.
An integral part of the recent loan agreement with the International Monetary Fund (IMF), the state’s withdrawal from various industries will take place through initial public offerings (IPOs) on the stock exchange selling chunks of state-owned companies to strategic investors and public-private partnership (PPP) agreements.
The cabinet said in early January that it is ready to offer shares in four state-owned companies — the Banque du Caire, Misr Life Insurance, Egyptian Linear Alkyl Benzine, and the Egyptian Drilling Company — with eight more listings including the petroleum company Enppi still in the pipeline.
Foreign portfolio investors are also regaining their interest in the country’s debt market, and the decline in the value of the pound has made it more appealing to emerging markets investors.
Last year, the tightening of monetary policy by the US Federal Reserve led many investors to flee the local debt market, divesting $22 billion worth of Egyptian treasury bills and investing in the profitable dollar instead.
Since the war on Ukraine started early last year, Egypt, a major importer of wheat and food oil, has been suffering from a widening dollar crunch. The pound declined to a record low of LE32 per dollar before it stabilised to hover around LE29 to the dollar last week.
According to the US financial service Bloomberg, if the real effective exchange rate, a measure of competitiveness against major trading partners, is used, the pound is 25 per cent undervalued.
However, this does not mean it will not see further declines in value, with the Deutsche Bank expecting the pound to reach LE33 per dollar before stabilising.
The last time Egypt tapped the international debt markets was in March 2022, when it issued yen-denominated securities. Its last dollar-denominated debt deal was in September 2021.
Meanwhile, the difference between the official value of the pound and that quoted on the parallel market has narrowed. The backlog of imports at the ports, a factor that has increased the price of imported goods, is improving.
The current backlog stands at some $5.3 to $5.4 billion worth of goods, of which $3 billion are stuck due to problems with paperwork and not to a lack of dollars.
The government of Prime Minister Mustafa Madbouli is working on political reforms, with the last few weeks witnessing the release of a number of prisoners, the most recent being the release of businessman Safwan Thabet, founder of the dairy and juice producer Juhayna, and his son Seif.
They were detained months from each other in 2020 on accusations of belonging to and financing a terrorist group, an accusation that they denied. The business community welcomed the move, and trading in Juhayna shares was suspended the following day after it exceeded the daily limit.
The government’s decision to offer subsidised bread to people who do not have ration cards has also gained praise. People will now be able to buy 90-gramme loaves at cost price using pre-paid cards, Minister of Supply Ali Moselhi said, adding that the exact price had yet to be decided, but it would be less than LE1.
More than 79 million people in Egypt are eligible for the heavily subsidised bread. The move comes as many people are struggling to make ends meet, with the inflation rate soaring to 21.7 per cent in December, its highest level in five years.
*A version of this article appears in print in the 26 January, 2023 edition of Al-Ahram Weekly