As the Egyptian pound reached a record low of US1$ equaling 10 LE on the black market in March, the Central Bank of Egypt announced that it would pursue a more flexible exchange rate policy. In fact, on the 14th of April, the CBE admitted a major devaluation of the pound to 8.85 EGP per dollar from its previous level of 7.73 EGP. It is the first devaluation since Central Bank governor Tarek Amer took up office in November 2015. The policy-shift is intended to respond more effectively to market imbalances.
Indeed, shortly after the move, the CBE was able to record a sale of US$500 million in treasury bills and bonds. However, experts warn that a further devaluation of the pound will lead to a significant increase of inflation. With several million Egyptians reliant on subsidized food supplies, a boost of consumer prices could have devastating consequences. The CBE stabilised the pound at the end of the month at 8.78 EGP.
Furthermore, to address the problem of informal speculation on the parallel market, Supply Minister Khale Hanafi announced on March 21th that the government would introduce a “unified exchange rate”, which is to be fixed in cooperation with money changing companies. However, Egypt Independent reports that, despite the agreement, Egypt’s General Prosecution is investigating several exchange bureaus for hoarding dollars.
Egypt Independent reports that the foreign currency shortfall is leading to major shortages in pharmaceutical products. In fact, as the sector is heavily reliant on imports, companies struggle to proceed to vital raw-material purchases in foreign markets. Therefore and because the government imposed restrictions on retail prices, several companies consider halting their production.
The Egyptian government decided to ban the trading of imported wheat inside the country. Egypt, which is the largest wheat importer in the world, has fixed a local procurement price above global prices in order to encourage domestic wheat production. However, this margin has been subject to wide scale fraud as smugglers continued to resell cheap imported wheat on the domestic market.
Also, the government will reduce its fuel subsidies to lower its budget deficit. The cut will be amortised by the falling oil price, according to the Egyptian Finance Ministry.
Orascom Telecom, the company of the Egyptian businessman Naguid Sawiris, offered a tender for the acquisition of CI Capital, a branch of Egypt’s largest commercial bank, Commercial International Bank (CIB). However, several banks, supposed to finance the acquisition, withdrew from the project. Later, the National Bank of Egypt offered a bid for the acquisition itself, competing with the offer from Telecom. Sawiris accuses the Central Bank of Egypt of stalling the acquisition and disrupting competition by the use of public funds.
In a move to make Egypt more attractive to foreign investment and to stabilize the stock market, the CBE will acquire stakes in two major investment banks. Indeed, the Central Bank will purchase stocks to a 40% stake of the Arab African International Bank (AAIB) and to a 20% stake of Banque du Caire on the Egyptian stock market by the end of this year.
Saudi-Egyptian Business Relations
On the 7th April, Saudi Arabia’s King Salman arrived in Cairo for an exceptional five-day visit in Egypt. According to a press release of the International Cooperation Minister Sahar Nasr, both countries signed agreements accounting to US$25 billion during Salman’s stay in Egypt. Furthermore, they agreed on the creation of a 60 billion riyals (approx. US$16 billion) investment fund, infrastructure investments and the creation of an economic free zone in Sinai.
The highlight of the visit was the announcement of the construction of a bridge across the Red Sea, connecting Egypt and Saudi Arabia with a motorway. The bridge, which will be named after the Saudi King Salman, is intended to foster trade relations between the two countries.
The Egyptian presidency further announced that Egypt would return the islands of Sanafir and Teeran in the Red Sea to Saudi Arabia.
Ahead of the visit, the Saudi company Saudi Aramco concluded a US$23 billion deal with the Egyptian General Petroleum Corp over the provision of petroleum products to Egypt within the coming five years.
Together with the investments announced during King Salman’s visit, business relations between Saudi Arabia and Egypt brought up projects worth approximately US$45.65 billion in April alone. According to experts, the agreements are believed to be part of a new policy regarding Saudi financial aid to Egypt, focusing on loans instead of interest-free financial support.
Egypt’s tourism industry continues to suffer from the repercussions of the attack on a Russian plane in October 2015. Indeed, the number of tourists has declined by 45.9 % in February compared to 2014. The hotel occupancy in the Sinai region ranged from 2% to 17% in March.