By Mohamed Ahmed
Foreign companies operating in Egypt are facing difficulties in transferring their money, especially profits, overseas, in light of the acute shortage of dollar resources in Egypt.
The crisis is gradually worsening, as foreign exchange reserves are still at risk. They declined to $18.09bn, despite the $12bn in aid Egypt received from GCC states during the Economic Summit, $6bn of which were in deposits.
However, the Central Bank of Egypt (CBE) insisted on maintaining the deposits regulations it launched in the first quarter (Q1) of 2015. This allows for a maximum of $10,000 to be deposited per day, and $50,000 per month, a regulation imposed to control the black market. These regulations negatively impacted the dollar availability for companies operating in the Egyptian market, which reflected negatively on the dollar provision for companies operating in the Egyptian market.
Postponing foreign acquisition deals
According to the head of one of Egypt’s largest investment banks, who requested anonymity, the banks refuse to transfer the complete profits foreign companies in the local market make.
“As a result, some of the foreign companies stopped pumping more investments [into Egypt], fearing they would be unable to transfer their money to the mother company in the future,” the bank head said.
He added that there has already been a case where investments were postponed – a foreign financial services company was unable to transfer profits of $5m, which made it postpone the decision to acquire a local financial services company with over $100m.
According to the investment bank head, the CBE should determine a clear strategy and apply it, in order to make the foreign exchange available, and at the same time counter the black market.
He added that this strategy should not be based on cracking down on foreign and local companies seeking to provide dollar resources to finance the purchase of the tools, raw materials, or finished products.
The bank head emphasised that the CBE should make a priority list for the goods that deserve foreign currency. In March 2013, the CBE announced allocating a foreign investments fund, as of that month, to be responsible for providing foreign exchange for investing in securities.
However, officials in banks and brokerage firms denied that the fund paid the complete transfers of the new investments.
Companies keep dollars abroad
Fears over the negative consequences of the above scenario have already started to appear in the local market. The director of investor at a company listed on the stock market, who also requested anonymity, said his company refused to transfer revenues achieved.
The staff member outlined that his company had agreed with a bank to transfer an amount of dollars to the local market and then to transfer it again, also in dollars, when the company needed to pay salaries in a branch abroad. However, the bank refused to grant the amount in dollars, and required that the company place itself on the foreign exchange waiting lists.
The CBE has activated the dollar’s auction mechanism, FX Action, to sell dollars to banks through periodic auctions which it determines, in order to fund basic and essential goods. This system was established as an alternative to the dollar interbank system, based on selling and buying the dollar between banks, as a result of the lack of dollar liquidity in the banking system following the 25 January Revolution.
The crisis has not hindered Arab investors
According to Ayman Abou Hend, investment manager at US company Cartel Capital and regional partner of US investment company Graviton, some foreign companies are facing a crisis in delaying the transferral of profits overseas. This is due to the lack of dollar liquidity, on the one hand, and the CBE’s priorities regarding funding of the basic commodities, on the other.
Despite this crisis, Abou Hend stressed that Arab investors remain interested in pumping investments to Egypt. This is through engaging in establishing new projects, or through acquisitions in the fields of agriculture, real estate, energy, and food industries, as the volume of consumption continues to increase.
Dollar shortage ruined CBE’s policies
“We are not fully aware of the amount of the economic and political pressures put on the CBE while settling the monetary policies to contain the black market. However, these policies failed to achieve their goals,” said Karim Helal, Chairman of Abu Dhabi Capital.
Helal said there are signs of that failure. Firstly, the dollar exceeded the EGP 8 barrier in the black market, while it remains stable in the official market, at EGP 7.73. Secondly, despite the long waiting list of importers at banks, the volume of imports continues to increase, unlike exports.
He explains that big importers are well aware of how to circumvent the CBE’s regulations, such as dividing one shipment over a large number of small traders who apply for small sized credit letters, instead of applying for one large request. This leads to more flexibility in obtaining the needed foreign exchange.