EGP devaluation is not a condition to increase exports: Exporters

Shaimaa Al-Aees
4 Min Read

Former head of the Food Export Council (FEC) Alaa El-Bahi said that the devaluation of the Egyptian pound would affect exports positively.

El-Bahi added that the exchange rate of the pound after devaluation gives a competitive advantage for Egyptian products in foreign markets, which may increase exports and increase revenues of hard currency coming into the country.

Meanwhile, former head of the Textile Export Council Magdi Tolba said that the devaluation is expected to increase exports but other procedures must follow.

Tolba added that these procedures are; increasing industrial production, solving the problems of suspended factories and supply energy for the factories.

Tolba criticised the contradiction between the monetary and banking policies from one side and the economic and industrial policies from another side, which led to the decline in exports.

He explained that the devaluation may have a slight positive affect because the added-value of the exported raw materials remain high as it requires hard currency to be imported.

“The higher the added-value is, the higher the prices of production materials are, which leads to more burdens on the exporter,” he said. “The devaluation would increase the activity of factories to largely provide production for export.”

Tolba demanded the reformation of industries in Egypt to benefit from the devaluation of the pound.

He noted that textile exports declined starting three years ago and witnessed a serve decline during 2015, adding that textile export revenues amounted to EGP 3bn three years ago and now exports don’t exceed EGP 2.5bn.

Mohammed El- Mohandes, Head of the Engineering Industries Export Council, said a number of countries had to devaluate their currency to stimulate their economies, such as China to increase exports. However, with the situation in Egypt, exports decreased and imports increased.

“Exporters didn’t get the money allocated for export support and it was not obtained from the last fiscal year (FY) 2014-2015 funds, and some exporters and factories rely on it,” El-Mohandes said. “Now factories and exporters can rely on this amount of money or calculate it in the cost.”

Economic scholar at the Carnegie Middle East Center, Amr Adly, said that the reduction in the exchange rate comes to hit the black market and provide dollar liquidity in the banks and then in the official market, and then pay the efforts of re-unification of the actual exchange rate again.

Adly noted that the classical economic theory states that lowering the exchange rate would stimulate exports and improve the balance of trade by reducing imports.

Adly added that this theory may apply to the Egyptian situation and may not because it is not clear if Egyptian exports enjoy flexibility. Flexibility is needed to take advantage of the competitive advantage granted by the exchange rate devaluation, especially since about half of Egypt’s exports are petroleum raw materials, which experienced a decline with the fall in world oil prices.

He pointed out that the increase in import prices may reduce the chances of economic recovery because it will raise the cost of production inputs.

“However, the devaluation will open the door to local products to better compete with imported products on the basis of price,” Adly added. “The recovery of the economy may double the problem of black market increase due to high demand on hard currency”.


Share This Article
Leave a comment