Currency woes and systemic inefficiencies slow Egypt’s economic growth
CAIRO – As bad business indicators keep piling up for Egypt, international lenders say concerns about political instability, corruption and inefficiencies in the regulatory environment are obstacles to private sector growth needed to put the economy back on track.
Economic surveys show that the downturn of Egypt’s non-oil private sector continued and in late July the Egyptian pound weakened to a historic low, with “parallel market” exchanges valuing the local currency at EGP 13.10 the US dollar. The official rate set by the Central Bank sets the value of the Egyptian pound at 40 percent higher at GGP 8.88 to the dollar.
Central Bank Governor Tarek Amer was scheduled to join a panel to address the “What’s holding back the Private Sector in MENA (Middle East and North Africa)” report released this week by The European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB) and the World Bank.
Instead Amer was at the Central Bank’ headquarters ordering the shutdown of un-registered currency exchange bureaus with some local media reporting he made a private appearance at the parliament’s Economic and Industry Committee which held an emergency meeting on the consequences of the deteriorating currency.
Former Finance Minister Ahmed Galal told the lenders’ conference that “Egypt has achieved political stability and security, but has not yet achieved economic stability. Parliament has yet to figure out how to address the budget deficit or put in place a plan for inclusive growth.”
With more Egyptians traveling abroad than foreign tourists visiting the country’s archeological treasures or coral rich Red Sea beach resorts, the foreign currency crunch has become acute.
The National Bank of Egypt and Banque Misr began capping foreign currency withdrawals for travelers at $500 in late July and the Central Bank has set similar caps on use of credit and debit cards abroad.
More multinational companies are announcing that they will only be accepting payment from Egyptian customers in US dollars and pharmaceutical importers have been told that the Central Bank is now directing all of its foreign currency holdings to food imports.
“I’m expecting shortages of chemotherapeutics and cardiovascular agents as well as medical supplies including surgical sutures,” said Osama Rostom, deputy chairman of the pharmaceutical chamber of the Federation of Egyptian Industries, adding that “the situation could deteriorate very rapidly.”
“Finding a way to reconnect banks and firms is crucial to enhance growth opportunities in the region,” European Investment Bank’s Chief Economist Debora Revoltella told The Media Line. “International financial institutions have the expertise and willingness to complement domestic policies,” she pointed out.
Cairo is the key beneficiary of the bank’s Middle East and North Africa portfolio and almost 60 percent of EIB’s regional 2015-2016 lending was directed to Egypt.
Revoltella said the EIB was working to get a foreign currency lending program in place for Egypt’s small and medium enterprises.
Private sector entrepreneurs claim that state-owned enterprises get preferential treatment from local banks.
“The president had been advised to go for mega projects like the Suez Canal expansion without necessarily having the financial data in place to support the decisions,” economist Amr Hosnsy told The Media Line. “A narrow circle of tycoons have Abdel Fattah el-Sisi’s ear on economic policy.”
The New Suez Canal project, which cost $8.2 billion to build a new shipping lane along part of the canal, was completed last year. Done primarily by shipping firms with ties to the military, the widening of the waterway was supposed to double its annual earnings in less than a decade, pump life into Egypt’s lagging economy and create more than a million new jobs but last year, Suez Canal revenues declined more than 5 percent to total $5.1 billion, down from $5.5 billion in 2014.
Sahar Nasr, Minister of International Cooperation told a conference in Cairo cosponsored by the European Bank for Reconstruction and Development, the European Investment Bank, and the World Bank, that the notion that the government gave preference to state-owned enterprises and a cluster of politically connected firms was as much of a perception problem as a policy.
“In the past months we have implemented new contracting laws requiring open bids on government projects and we are posting these tenders online,” said Nasr. “Despite the progress accomplished by the government, efforts are still needed to facilitate more investors in the private sector.”