Managers of investment and research departments in direct investment banks and companies have stressed that foreign investors have priced their US dollar investments in the local market on a basis of EGP 12-13, in terms of direct investments or stock-oriented investments.
They explained that US dollar pricing on this basis reflects their own estimations of the Egyptian pound’s price at the moment, which has currently been met with acceptance from the local partners’ side.
Ayman Abou Hend, head of the direct investment sector in the American Cartel Capital Company in the Middle East and North Africa, said that foreign companies and direct investment funds have rated the dollar at a price ranging between EGP 12-13 in their shares of projects that will be implemented in the local market.
Abou Hend explained that foreign investors are ahead of the Central Bank of Egypt (CBE) in terms of their vision of the pound’s exchange rate. The CBE fixed the price of the pound on Tuesday against the speculations of investors, yet investors have traded based on an exchange rate that, according to their estimations, truly represents the pound’s value.
Local investors are dealing with these estimations as a reality, driven by two main factors. The first is projects’ need for dollars to purchase capital equipments and productive assets, as well as production requirements.
The chairperson of the direct investment sector in Cartel Capital explained the second factor, which is the ability to convert large dollar amounts at an exchange rate of EGP 13 in the market. This price exceeds the average in the informal market, where the dollar is estimated at EGP 11, due to the difference in amounts required to be converted to Egyptian pounds.
Governor of the CBE, Tarek Amer, announced two weeks ago that maintaining an unrealistic price of the pound was a mistake, adding that the stability of the exchange rate will mean nothing when factories are halted.
The American Bloomberg news agency published a report about the CBE’s intention to devaluate the pound during Tuesday’s tender. Investors were prepared for this step—but the CBE went against all expectations.
Abou Hend pointed out that there is a segment of investors who have agreed with local partners to delay the implementation of projects until an official devaluation of the pound is made, in order to avoid the negative effects of profit margins in the case of devaluating the pound after injecting investments in US dollars.
Hany Genena, head of the research department in Beltone Investment Bank, said that foreign investors are trading with a dollar price ranging between EGP 11.80 and EGP 12.5, whether in the stock exchange or direct investments.
Genena gave the example of trading with the certificate of deposit of the Commercial International Bank (CIB) in the London Stock exchange based on a dollar value of more than EGP 12 at most times.
He noted that foreigners’ trading which is based on this value within the projects they take part in inside the Egyptian market may negatively impact the profit margins of some projects in case companies were unable to price their products and services based on the new dollar pricing.
He stressed that this crisis will not necessarily face all companies, instead, the case will differ from one sector to another and from one company to another according to the market’s nature and ability to accommodate any new increases in prices.