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The future of product prices is unpredictable - Daily News Egypt

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The future of product prices is unpredictable

Experts, businesspeople, and investors remain unsure about whether the prices will be hiking or dropping in the future

Since the pound floatation, which was implemented last November, the price of almost every product, component, or service has increased because of the low price of the Egyptian pound alongside many other factors.

The price of the Egyptian pound has sharply decreased against foreign currencies, as it reached more than EGP 19 per US dollar immediately after the flotation.

However—continuing its volatility—the value of the pound increased again, which led the government to set the customs price of the US dollar to EGP15.75.

The decision made some manufacturing companies, importers, and dealers reduce the prices of their products, while others chose to raise their prices in spite of the new value of the pound.

The price of poultry has increased EGP 2 for the kilogram, which reached EGP 20, mainly due to the higher input costs of feeding as well as lower production rates because of widespread diseases in the winter.

Poultry feed has reached EGP 4,000 per tonne of corn and EGP 8,100 per tonne of soy beans.

Concerning building materials, the price of steel has also increased to record EGP 9,150-10,000 per tonne, which affects the price of housing units.

In the smart phone sector, Samsung reduced the prices of its mobile phones for the second consecutive time, at a ratio between 3% and 5.6% at the beginning of March. The price of the Piton declined from EGP 420 to EGP 400, a reduction of 4.8%, according to a price list obtained by Daily News Egypt. Moreover, the price of iPhones declined by 3% in February according to the new price list of Apple products.

The prices of Samsung televisions also saw drops in February by 3.9-8.1% as part of a plan to expand in the Egyptian market and acquire a larger share.

Regarding the automotive market, car prices have witnessed hikes that made them unaffordable for many Egyptians.

And since the value of the pound is likely to witness drops again in the next few days after it reached more than EGP 17 per US dollar, economic experts and businesspeople are left guessing about what is going to happen about the prices next; yet they believe that the informal market for foreign currencies is rising again.

Aliaa El-Mahdy, the dean of the College of Economics and Political Science at Cairo University, stated that the current situations of ups and downs for the US dollar would go on for a while.

She added that the exchange rate’s instability in the next period will continue because of the natural mechanism of supply and demand, explaining that this in itself is not worrying and a normal thing in any free market.

Regarding the product prices, El-Mahdy said that prices would soon drop, because the government reduced the customs dollar rate for importers. She furthermore stated that this is a good thing and that it would be wise if the government kept it stable at its current price of EGP 15.75.

“I was talking to a banking official (not the governor of the Central Bank of Egypt), and he stated that the banks are providing foreign currency to any investor who asks for it,” El-Mahdy noted regarding the possibility of another rise of the informal market—something which is not going to happen in her opinion.

The managing director at Multiples Group, Omar El-Shinity, believes that the price of the US dollar will remain unstable in the near future, stating it could reach EGP 18.5 before it drops back again to EGP15.75.

He said that after the flotation, companies expected the dollar price to hike to EGP 25 and adjusted their prices accordingly, again reducing them after it started dropping—assuming that the fair price for the pound would be between EGP 16 and 18.5.

“I believe that local companies will not easily reduce their prices, because the US dollar is one of many factors that affect the price, including factors such as customs restrictions, the value added tax, and inflation,” El-Shinity noted.

Regarding the informal foreign currencies market, he stated that the informal market is coming back to life due to a lack of supply by the Central Bank of Egypt (CBE) and the banking sector that occurred after the customs US dollar rate was lowered.

El-Shinity believes that the government might raise the customs dollar rate again because they reduced it rather sharply, but he thinks that the government must keep it stable for the next three months in order to stabilise the market.

From another view point, head of Middle East for Clothes company, Abdel Ghany El-Abasiry, estimated that the prices of products will reduce, but that this would take time, explaining that manufacturers and investors bought their components at high prices when the dollar stood at EGP 19. He explained that it takes time for them to import new components at the new lower prices.

He added that the price of textile products would decrease by around 8-10%, probably within the next 15 days.

“The government has to provide US dollars, because the return of the informal market is a negative sign,” he noted.

Furthermore, the head of the Investors Association for 15th of May City, Fouad Amin, said that prices are unlikely to decline soon.

He believes that the exchange rate could rise again, which would affect the price due to the state of instability that the exchange rate is witnessing.

He added that the return of the informal market is the natural result of banks being ignorant regarding investors’ needs for foreign currency.

He believes that the lower price of the US dollar is not going to remain this low for a long time, explaining that there is a lack of sources for foreign currency in Egypt. However, prices might reduce if the exchange rate stays at EGP 16 for some time, he noted.

Moreover, the head of Badr City’s Businessmen Association, Bahaa El-Adly, said that prices of products may remain at their current level until the prices of foreign currencies stabilise.

He added that producers would not reduce prices immediately, because there still is demand, adding that once the market is sated, prices would decrease too.

El-Adly stated that no investor will reduce the price, unless he is certain about the stability of the exchange rate.

From another direction, a source at the Arabian Food Industries Company (Domty) said that his company will move its prices in accordance with drops in the exchange rate and a certain amount of stability. The source, who preferred to remain anonymous, added that the company will lower its prices only if the exchange rate remains low and does not hike once again. He noted that the company will reconsider its price lists in the two coming months.

The source explained that the company did not raise its prices significantly during the dollar exchange rate hike following the flotation.

He said that a lower exchange rate will not impact prices immediately, as distributors and traders have a stock of high-cost products, noting that prices may go down in a few months when the official price of the greenback at customs stays low or drops further.

Moreover, the deputy chairperson of Obour Land, Ashraf Hamed, told Daily News Egypt that his company does not intend to raise prices again since the pound strengthened to EGP 16 against the USD, adding that it will cut the prices by 15% if the exchange rate stabilises at EGP 15.

Hamed pointed out that the strong competition, both at the level of distributors and companies, will push the prices down if costs decline, also saying that “it is naïve to expect lower prices according to a lower intraday exchange rate,” he stressed.

He explained that the company did not raise prices at the same level as their own costs have risen.

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