x Abu Dhabi, UAEFriday 21 July 2017

Egyptian trade takes a pounding as currency struggles

The Egyptian has been setting record lows against the US dollar and currency reserves have fallen to three months' worth of imports, deemed a critical level.

Sherif Joseph Rizk started a publishing company in Cairo to capitalise on the intellectual debate unleashed by the toppling of Hosni Mubarak nearly two years ago.

"There is an old saying that says: Cairo writes, Beirut publishes and Baghdad reads," says Mr Rizk.

"I'm hoping that it'll resonate in the near future, but it has been difficult. For one, paper - an essential raw material for us - has become more expensive."

And not only paper. Across the country, businesses are battling with rising inflation and restrictions on foreign exchange transactions.

The root problem: the pound has been setting record lows against the US dollar and currency reserves have fallen to three months' worth of imports, deemed a critical level.

The pound has lost about 6.5 per cent of its value since auctions were introduced last month to preserve the central bank's plunging foreign reserves by limiting the amount lenders can buy. That is more than twice the amount it fell in the previous year.

Companies are finding creative solutions to cope.

Ghabbour Auto, the Cairo-based outfit known as GB Auto that is the largest independent car assembler and distributor in the Middle East, is considering a short-term hedge as a protective measure in the face of a plummeting currency.

GB Auto has exposure to the dollar, South Korean won and the euro because of its agency rights to Hyundai, Mitsubishi and Volvo.

The devaluation of the pound is a threat, as purchasing power weakens demand for their passenger cars, analysts at National Bank of Kuwait said in a note to clients.

When Egypt's uprising began in January 2011, GB Auto mitigated the drop in sales in its home market by focusing on Iraq.

GB Auto shipped cars through Syria but was forced to re-route shipments through Turkey when the uprising reached Damascus in March 2011.

The pound hit another record low on Sunday, trading at 6.58 to the dollar. Yesterday, it traded at 6.63.

The country's banking watchdog has now limited auctions to three times a week instead of daily to cushion the blow.

The long awaited US$4.8 billion (Dh17.63bn) loan from the IMF is expected to offer a lifeline for the country's stagnant economy and shore up foreign reserves.

A team of experts from the fund was to visit Cairo before the end of the month after authorities amended the loan programme because of the country's unsettled politics and fading currency, said Masood Ahmed, the fund's Middle East and Central Asia department head.

 

halsayegh@thenational.ae