The continuing increase in US dollar price casts a shadow on the various branches of economic activity and investors disagree on the evaluation of currency fluctuation.
The Egyptian pound has lost 5 piasters of its value vis-à-vis the US dollar, which reached 617 piaster in inter-bank transactions over the last week, while it was sold to individuals at the rate of 619 piaster on Thursday.
The scarcity of American currency is explained by the inability of the Central Bank to intervene, in light of the dwindling foreign reserves that reached $15 billion, and the obligation to reimburse $1 billion of Egypt’s external debt, maturing by the end of December.
Theoretically, the increase in foreign currency price should have an impact on imports, it increases the imports’ price and hence lower imported quantities, which will have a positive impact on the balance of trade.
“This is not accurate” said Ahmed Shiha the head of Importers Division. “The Egyptian industry depends totally on imported raw materials; refrigerators, washing machines, LCD screens, while other industries have the majority of their components imported, the industry will not dispense imports.”
The steadiness of exchange rate will not be achieved by a single decision according to Shiha, “it’s a whole system; the political stability will attract foreign investment and tourists back to Egypt” the prosecutions of businessmen scare away potential investors and convey a negative message to the outside world “we will fight incoming investors.”
The tourism sector is deeply affected by the current instability; tourism workers are idle and the majority of Christmas reservations have been cancelled according to the head of importers division who added “I think this government will not be able to achieve anything, I call upon President [Mohamed] Morsy to appoint a strong government with people who have a good reputation and good relations with the foreign countries, like the former Minister of Industry and Commerce Rashid Mohamed Rashid.”
“When stability is achieved, dollars will flow in,” said Shiha, “the other side of investment is stability, the lack of it drives investors to neighbouring countries like Lebanon, Jordan or Saudi Arabia who offer free factories for entrepreneurs.”
The businessman denied that the referendum on the draft constitution that was held Saturday would bring any stability. Almost half of society is against the constitution, many of the articles are controversial, including those that address the economic system and fraud allegations threaten the credibility of the referendum.
Shiha expects the US dollar exchange rate to continue increasing in the near future if the government doesn’t take the appropriate measures, it may exceed seven pounds per dollar in one month, he speculated, noting that the current foreign reserves are not enough to finance three months of food imports.
The uptrend of the dollar is seen differently by importers, whose products will have better access to foreign markets thanks to a relative price decrease.
“The increase is not dangerous” said the former chairman of the readymade garments export council, Magdy Tolba “this trend is economically positive, it promotes imports, and renders Egypt a more attractive touristic destination being less expansive, a five per cent to 10 per cent movement of exchange rate will not harm the market.”
“Reducing imports is required because we have been witnessing an importation extravagance, the bill is huge” continued Tolba, “we have to pressure imports and fix the trade deficit by moving the exchange rate in a certain limit, and under the supervision of the Central Bank to see the real value of the pound and to increase the credibility of our economy in front of international institutions and donor countries.”
To overcome the negative consequences of a devaluated currency, Tolba suggests an integrated package of reforms; the government must take serious steps to increase the depth and integrity of the Egyptian industry, and give incentives to manufacturers in the field of textiles for example, to amplify the locally produced component.
On the other hand, Tolba criticised what he called “negative” industries that have a majority of imported components, like cars. He emphasised the importance of having an added value measurement in each sector, and each branch inside the sector, to identify the sectors with highest value added and promote them.