By Mohamed Ahmed
A number of Egyptian export companies have reduced the effect of the Egyptian pound’s devaluation against the dollar on supporting its competitive ability against foreign products.
This was due to the decline in the rate of some currencies in the markets competing with the Egyptian market, on top of which is the Turkish lira.
The Egyptian pound has witnessed consecutive declines since the start of the year, where the pound dropped by 11% against the dollar which was at EGP 7.05 in January. The Egyptian pound then increased to EGP 7.63, and has recently gone up to EGP 7.83.
“These consecutive decreases on the Egyptian pound this year did not significantly affect the value of textiles offered by Oriental Weavers to the European, American, and Asian markets. The company lowered its selling prices already by 5% to 8% due to the decline in the prices of production materials,” said Ingy El-Diwany, Investor Relations Manager at Oriental Weavers.
According to El-Diwany, the decline in oil barrel price to $55 at the start of the year led to a decrease in polypropylene, an oil derivative and main production input for carpets, and nylon at a rate of 20%-25% until the end of the first quarter. However, it started to rise again.
Despite the reflection of the dollar price rise on the gross profit margin, when Oriental Weavers would direct 65% of its production to external markets, this improvement did not affect cash flow due to some commitments to the dollar. These commitments include importing polypropylene and dollar loans, El-Diwany added.
Local exports of rugs, cloths, and petrochemicals are facing a fierce competition with Turkish products, with the Turkish currency dropping by 36% against the dollar since the beginning of the year.
“Devaluating the local currency is a step in the right direction to support the competitiveness of Egyptian industries and exporting companies against the competing markets,” said Mohamed Talaat, Chief Investment Officer and Director of Investor Relations at Al-Arafa for Investment and Consultancies, a leading clothes exporting company.
According to Talaat, this devaluation enhanced the ability of the Egyptian export companies to price their products in foreign markets. However, Egyptian industries need more incentives regarding monetary policy in order to create an integrated environment that supports competitiveness of local companies.
The most important of these incentives in Talaat’s opinion is the abundance of hard currency in the market. This means that companies would be able to import production inputs and allow free dollar trading as one of the flexibilities required for monetary policy.