Egyptian companies forced to 'do illegal things to stay in business'

 Egypt's severe economic crisis push manufacturers to engage in illegal trade practices to remain afloat

Middle East Eye, 11 February 2023

 

A lack of foreign currency and tough banking requirements to finance imports is forcing many Egyptian manufacturers to engage in smuggling and illegal trade activity to stay afloat, manufacturers and analysts told Middle East Eye. With bogus export practices seemingly widespread, Egypt’s official trade figures may also be inflated. 

For Egyptian businesses dependent on importing raw materials and machinery to manufacture goods it has been a turbulent past year.

The currency has devalued three times against the US dollar since March, losing half its value, while inflation has surged, reaching 22 percent in December.

"Due to inflation and the depreciation, our buying power is over 50 percent less than the start of last year," Gamal*, a Cairo-based garment and textile manufacturer, told Middle East Eye, using a pseudonym.

"It is difficult and expensive to import raw materials and close to impossible to import machinery, even if you have the money."

The skies started to darken for manufacturers last February when Russia invaded Ukraine, which drove up the price of energy, caused delays in the supply chain, and created market uncertainty. Some $22bn was pulled out of the country’s debt market by foreign investors.

Then in March, Cairo depreciated the Egyptian pound to meet International Monetary Fund (IMF) requirements after Egypt sought a $3bn loan, its fourth in six years from the lender, to meet its growing debt obligations. The move drove up the cost of importation for businesses, particularly for firms that did not earn 50 percent or more of their earnings in foreign currencies from exports. 

In May, domestic regulations imposed an additional burden when the Central Bank of Egypt required businesses to use foreign currency for letters of credit (LC) – a bank-issued document that guarantees payment upon delivery of goods or services – instead of dealing directly with international suppliers. 

At the same time, the government increasingly restricted the amounts that foreign currency bureaus were allowed to exchange.

Dollar deposits at banks also started to dry up as account holders transferred their savings into Egyptian pounds to take advantage of local banks offering fixed-term savings certificates with interest rates of over 18 percent, and up to 25 percent as of January. 

"A lot of people exchanged US dollar deposits for Egyptian pounds and then bought the certificates, so this has vacuumed foreign currency out of the local banking system,” said an Egyptian official off the record.

To read the rest go to Middle East Eye