It's Business Against Government as Egypt Dollar Crunch Deepens

  • Opposition mounts against currency curbs seen harming business
  • Central bank says restrictions necessary to protect reserves

Egypt’s billionaire brothers Naguib and Samih Sawiris and a small steel importer named Mohamed are unlikely allies in the mounting opposition to how policy makers are handling the nation’s foreign-currency shortage.

Efforts to crack down on the black market and conserve dwindling foreign currency reserves are forcing Mohamed to break the law to secure dollars to keep his business afloat. The two billionaires, with interests in industries from telecoms to tourism, say the government’s failure to address concerns over the exchange rate and the dollar crunch have kept investors away from a country struggling to recover after four years of unrest.

“We don’t have answers to the questions from investors, so nobody will put in a cent,” Samih Sawiris wrote in the privately-owned Al-Masry Al-Youm in an article that his brother republished days later in another newspaper.

The clash over how to resolve the crisis is pitting some of Egypt’s most influential businessmen against the central bank and government officials backed by President Abdel-Fattah El-Sisi, who instructed authorities this month to cut imports of “unnecessary” goods. Investors are calling for further measures including weakening an overvalued currency to help attract foreign inflows.

Foreign currency has been difficult to get -- at least through official channels -- since the chaos accompanying the 2011 uprising against then President Hosni Mubarak scared off investors and tourists. More than $40 billion in aid from friendly Gulf nations, a Eurobond sale, and a nascent tourism recovery have failed to ease the shortage. At $16.3 billion, reserves are enough to cover about three months of merchandise imports.

The central bank has placed various curbs on the supply of dollars, including giving priority to importers of vital goods. It also set a $50,000 monthly limit on deposits to discourage companies from relying on the black market to finance imports. Governor Hisham Ramez has said the restrictions are affecting only businesses whose activities are not “essential.”

The government is in talks with the World Bank for a $3 billion loan to support the budget, Finance Minister Hany Kadry Dimian said on Wednesday. The money will be disbursed over three years, he said. Authorities are also planning to tap international bond markets for the second time this year. The central bank depreciated the pound for the third time this year on Thursday, taking the currency’s decline for the period to 9.8 percent.

‘Torture’

Mohamed, the Cairo-based importer, said his company is operating at a quarter of its capacity because of the curbs.

“This is a slow death, torture,” he said, asking not to be further identified for fear of prosecution. To pay his suppliers, he hands wads of Egyptian pounds to dealers in Cairo who charge him as much as six percent over the black market rate to deposit dollars into accounts in Dubai, London or China.

The measures have sparked a national debate that even El-Sisi, the former general who has all but silenced political opposition, has failed to stop. The dollar shortage is on the front pages of national newspapers and is the topic of prime-time talk shows.

“The central bank’s foreign-exchange policy is painful, but correct,” Amr Adly, a non-resident scholar at the Carnegie Middle East Center, wrote in Egypt’s Al-Shorouk newspaper on Oct. 1. The global economic slowdown and the stuttering tourism recovery mean the central bank has to preserve its foreign-currency reserves, he wrote.

Adel Nasser, secretary general of the Federation of Egyptian Chambers of Commerce, disagrees.

“The central bank must revoke all measures relating to the deposit limits and let the exchange rate be determined by supply and demand mechanisms,” he told the state-run Ahram Gate news website. “Goods are stuck in ports and most prices have risen as a result of these policies.”

The pound, which is subject to a managed float, is near its highest level in more than a decade when adjusted for inflation and measured against Egypt’s trading partners, a JPMorgan Chase & Co. index shows.

Private Contraction

While the economy grew at the fastest pace since 2010 in the fiscal year that ended in June, the expansion is fueled mainly by state spending. Non-oil private business activity contracted in six of the first nine months of 2015, according to the Emirates NBD Purchasing Managers’ Index.

Businesses stay alive only by finding new loopholes, said Ahmed Shiha, an electrical appliance importer and head of the importers’ chapter of Cairo’s Chamber of Commerce.

Currency exchange offices with branches in Gulf countries are the current method of choice, he said. Egyptian expats there exchange dollars for pounds at preferential rates; currency traders then deposit those dollars on behalf of the importers they’re dealing with in Egypt.

“I wouldn’t say there is a shortage of currency, I am able to get all the dollars I want, be it $50,000 or $10 million," Shiha said. “All that the restrictions are doing is raising our costs, which we pass on to consumers."

Ramez, the central bank chief, said the black market’s days were over shortly after imposing deposit caps in February. The parallel rate did disappear from about April to mid-August, when bets grew on a further depreciation of the pound after China’s currency devaluation sparked a wave of similar moves across emerging markets.

The dollar changed hands at 8.183 pounds on the street on Tuesday, a 4.5 percent premium to the then official rate, according to a Bloomberg survey of four dealers in Cairo and Alexandria.

Yasseen Mansour, the billionaire chairman of property developer Palm Hills Development, says Egypt should take advantage of the plunge in commodity prices and devalue its currency. The delay is already having a “tremendous cost” on the economy.

“The natural thing is to have a devaluation like the rest of the world,” he said before Thursday’s depreciation. “The longer you resist the deeper your problem becomes.”

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