Selling Dollars Instead of Lanterns Highlights Egypt Crunchby and
Egyptians speculating on likelihood of more pound devaluations
Currency slumped again at street sales after brief reprieve
Above the counter at Manal’s electrical store in Cairo are the lanterns and string lights that will illuminate homes during the holy Muslim month of Ramadan that began this week. Below it are dollar bills destined for the black market.
The businesswoman is the kind of opportunist currency dealer authorities targeted in March when they devalued the pound and raised interest rates to draw dollars into a formal economy starved of hard cash. Customers filing through her door shows success remains elusive.
“Most days, I make more money from selling dollars than regular goods,” said Manal, 35. “I know it’s dangerous and not sustainable. But I’ll make use of it while it lasts.”
The central bank finds itself in a bind well-known to authorities seeking to weaken a currency. With the pound’s official rate still well above its black-market value, investors are betting that another devaluation is on the cards. So those able to wait before selling dollars are doing so, while those who can’t delay continue to prefer dealers like Manal. After a two-week respite, the pound has slumped again on the street to about 11 per dollar versus 8.9 officially.
Policy makers “tried to trick the market, but ended up being tricked,” said Omar El-Shenety, managing director at Cairo-based investment bank Multiples Group. “The basic intuition of regular people, not to mention investors, is telling them that the pound will still lose more value.”
Five years of instability has seen the end of Hosni Mubarak’s three-decade rule, the election of a Muslim Brotherhood successor and an army-led takeover.
Investment and tourism dropped. And while foreign reserves rose $1 billion in the past two months, they are still more than 50 percent from pre-Arab Spring days. Aid from Gulf Arab monarchies, who saw their loans as an investment against the return of political Islam, has dwindled amid the drop in oil prices.
So Egyptians have had to rely on their wits. Mohsen, a 40-year-old salesman working in the United Arab Emirates, saw an opportunity in geography. He deposits pounds in 10 family bank accounts in Cairo, and then in Dubai withdraws the funds in dirhams and uses the cash to buy dollars. These he sends to Egypt for sale on the black market.
“It is so easy and there isn’t much risk to it,” said Mohsen, who, like the others interviewed, asked for his family name to be withheld for fear of prosecution. “With $20,000, I make as much as $2,500 a month and I am just a small fish. Others do it on a much larger scale.”
Policy makers said in March that the biggest one-time devaluation since 2003 was a precursor to a more flexible exchange-rate policy. The currency strengthened marginally a week later and has been unchanged since.
Central bank officials didn’t immediately comment when contacted by Bloomberg News. Governor Tarek Amer, in a recent interview with Cairo-based Youm7 newspaper, said foreign investors were buying more Egyptian stocks since the devaluation. He noted the steady increase in foreign reserves even as the drop in tourism eats into Egypt’s dollar inflows.
The benchmark EGX 30 Index has gained about 18 percent since the pound’s devaluation, making it the second-best performing in local currency terms out of more than 90 stock gauges tracked by Bloomberg. It was 0.2 percent down as of 10:05 a.m. in Cairo.
The government on Wednesday approved amendments to a law raising the penalty for illegal currency trading to as long as 10 years in prison. The central bank, which blames speculators for most of Egypt’s currency woes, has also revoked licenses of some of foreign currency bureaus. Yet the greenback shortage has so far blunted the impact of the measures.
Manal, the storekeeper in Cairo, turned to the black market a few months ago after her bank refused her the dollars she needed to purchase stock. She typically buys a few thousand dollars from individuals and sells what isn’t needed to run her business for a “very good and easy profit.”
Authorities need to ease restrictions on foreign-currency movements and “loosen their grip on the pound” for long-term stability, said Jason Tuvey of London-based Capital Economics. But it’s easy to see why officials might be nervous: such a strategy risks a spike in inflation and a rapid outflow of foreign currency that could leave Egypt unable to import basic foods or pay its obligations.
When Mohamed, an Egyptian physician, decided to return home after working for 20 years in Kuwait, black-market traders offered to exchange his dollar and dinar savings into pounds and transfer funds to Egypt at better rates than his bank. “They will deliver the pounds to my home in Egypt or into a bank account, and when I confirm their arrival, I hand them the dinars,” he said.
Egypt’s state-run MENA news agency recently reported the arrest of a dozen gangs offering such services. But it hasn’t put off Manal.
“A few months without currency and this business is finished,” she said, pointing to imported light bulbs and cables neatly stacked on shelves. “You have to be creative to be able to survive.”