Foreign Exchange Shortage Key Challenge for Egyptian Economy: Industry Experts at ECSS Workshop

The foreign exchange shortage that Egypt has been facing for over two years is currently a key challenge for the Egyptian economy, especially the industrial sector - a challenge that could erode all the actions taken by the country to attain economic growth.

This was the main concern of Egyptian industry sector representatives during the workshop held on Wednesday by the Egyptian Centre for Strategic Studies (ECSS), titled “The Challenges of the National Investment and the Opportunities of Economic Conditions Reconnection.”

The US dollar shortage in the local market is really serious, as manufacturers and businesspersons can set neither their expense plans nor those of the wages, Mohamed El-Sewedy, head of the Federation of the Egyptian Industries (FEI), said.

El-Sewedy also affirmed that providing hard currency liquidity to the market is now crucial, especially for industrial and agricultural sectors, which both are keys to the country’s economic development.

He also noted that Egypt's foreign exchange dual pricing is challenging, calling for adopting a single rate for currency to restore foreign investors’ confidence in Egypt as an atmosphere for investment.

El-Sewedy also highlighted the increasing interest rates issue in the local market.

“The current interest rates, which almost hit 25 percent, are not relevant to the investment climate in general, and to the industry sector in particular. Raising interest rates to contain inflation is ok, but inflation in Egypt is fueled by supply shortage not by rising liquidity,” said El-Sewedy.

He also asserted that the current interest rates represent a further burden on the industry sector and on manufacturers, which leads to a rise in the end product prices in the local market.

Hassan Allam, CEO of Hassan Allam Holding, affirmed that the lack of US dollar liquidity in the market is a key reason behind foreign investors’ aversion to either pump new investments in the Egyptian market or expand the current ones.

Regarding the construction sector, Allam noted that this sector in Egypt has a six million workforce, who are suffering a delay in receiving their dues for the projects they contributed to.

Allam stressed that the construction sector has benefitted from the huge projects that Egypt has constructed over the past ten years, adding that these projects have contributed to uplifting the quality of services the private sector introduces, particularly when it comes to designing, operating, and executing.

“This has made the private sector’s companies in this field cheaper in comparison to the public or governmental companies in terms of project costs.That’s why counting on the private sector is crucial for the country to lead its growth,” he stated.

Although the State Ownership Policy Document has set a wide range of partnerships between the private sector and the governmental bodies, particularly the PPPs and POT, the number of projects assigned to the private sector since the issuance of this document is very limited, Allam added.

The completion of Egypt’s ongoing $3 billion loan deal and the acceleration of the government’s IPO programme are key factors to restore foreign direct investments (FDIs) and to overcome the US dollar shortage crisis, Sherif El-Kholy, head of MENA at the private equity company Actis, said.

“These actions are crucial for the investment climate in Egypt,” El-Kholy stressed.

Moreover, levelling up the field between the public and private sectors is critical to getting the foreign capital back to the local market, according to El-Kholy.

He also noted that the market should be provided with the required US dollar liquidity, and investors should be allowed to enter and exit the market without restrictions.

Attaining sustainable economic growth, setting a long-term clear vision, and guaranteeing fair competition in the market are the currently needed actions to overcome the ongoing challenges of the Egyptian economy, said Ahmed Sobhy, Banque Misr’s equity sector head and Misr Capital CEO.

Unlike El Sewedy’s point of view, Sobhy believes tightening the Egyptian monetary policy through raising key interest rates is necessary now to stimulate investors’ appetite to pump new investments into the local market.