Egypt's hard currency shortage is choking trade and industry, spooking foreign investors and hurting growth, businesspeople said on Monday, urging the central bank to end restrictions on dollar deposits and move closer to a market exchange rate. Egypt has faced economic turmoil since the 2011 uprising that ended Hosni Mubarak's 30-year rule. Foreign investors and tourists, on which the country relies for foreign currency earnings, have stayed away. A Russian plane crash in Egypt last month that Moscow blames on a bomb has made matters worse.
Foreign currency reserves have fallen from $36 billion before the 2011 revolt to about $16.4 billion in October, leaving the central bank with little firepower to defend the Egyptian pound from mounting downward pressure. In February, outgoing central bank governor Hisham Ramez imposed restrictions on the amount of dollars companies could deposit in banks to crush a burgeoning black market.
Businesspeople say that policy has backfired, making it difficult for companies to open letters of credit to finance imports and worrying potential foreign investors concerned they will be unable to repatriate profits. Raouf Ghabbour, chief executive of car assembler and distributor GB Auto, attacked central bank controls which limit dollar deposits to $50,000 a month and force banks to prioritise goods like food when distributing scarce dollars.
GB Auto was forced to suspend activity for 20 days this year as it could not obtain dollars to pay for component imports. "The government gave me licences to set up factories... As a result of these licenses we invested 5 or 6 billion pounds. We hired 10,000 staff.... You cannot... tell me I'm not a priority," Ghabbour said in blistering comments at a monetary policy workshop organised by PricewaterhouseCoopers (PwC) and N Gage Consulting. "This policy will cause an economic collapse... Already this year, customs revenues are catastrophic."
Like others, Ghabbour hopes incoming central bank governor Tarek Amer, who begins on November 27, will overhaul monetary policy. Amer has yet to spell out his plans, but bankers credit him with supplying $1.8 billion in recent weeks to clear a backlog of imports at the country's ports and with an increase in yields on certificates of deposit in the Egyptian pound.
Those moves have been widely welcomed by industrialists, importers and bankers but more, they say, must be done to resolve the crisis. Removing capital controls tops their list. They say efforts to maintain the currency at an artificially strong rate had depleted foreign currency reserves and made exports - a vital hard currency earner - less competitive. Egypt's trade deficit has already tripled in the past decade to almost $39 billion as imports have ballooned and exports stagnated.
Capital controls have further discouraged foreign investors as few will invest in an economy where devaluation is widely expected and they are unable to move their forex easily. "The solution is to encourage investment and this will not happen except through a stable currency and that means one whose rate is decided by its real value," Ashraf El Ibrachy, founder of Ibrachy & Partners, said. A rout in emerging markets currencies this year has left the Egyptian pound looking overvalued in real terms despite a depreciation of about 10 percent over the course of the year. That makes Egyptian stocks look unattractive to foreign investors while the impact on manufacturing and trade has hit the bottom line of some listed companies, Mohamed Maher, CEO of brokerage Prime Holding, told the conference.