Amid many economic and political shocks that Egypt has witnessed in the last decade, the real estate sector has proven to be one of the most resilient sectors as it may have slowed down after the first and second revolutions and the devaluation in 2011, 2013 & 2016 respectively, but it did not crash. The real estate sector in Egypt is mainly driven by many factors, amongst which: a strong demand with a supply gap of 3 million residential units in 2020, a growing population of over 100 million people mostly young people, and general drive to buy real estate as either as an investment as hedging against inflation or for their children due to the continuous increase in prices. The Real Estate sector has been on the rise in terms of investments and contribution to GDP as it is a relatively safe investment and the demand is always increasing. This is until the COVID-19 crisis, as the crisis impacted the saving of many middle-class families and led many to lose their jobs which in turn affected their savings and their properties, Coldwell banker claims that real estate properties represent around quarter to third of the Egyptian families’ wealth at middle and high-income classes and even more than that for lower-income classes. Has the sector been affected so far? Despite the current situation that is affecting all the economy and the real estate market, the Egyptian capital Cairo, most sub-sectors remained stable during the first quarter with the office sector in particular that recorded strong performance. Cairo’s office sector has seen a 9% increase in average prime rents on an annual basis despite the unfavorable market conditions, due to the limited supply of high-quality offices. On the residential sector scenario, it remains almost unchanged with limited units delivered in the first quarter, keeping the total residential units at 159,000. A report published by Aqarmap (The largest real estate online marketplace in Egypt) shows that during the crisis of Covid-19 the leading purchase objective of the active buyers are actually first time home buyers, some are newlyweds or simply people who are finally entering the housing market; however, the segment breakdown shows how the objective differs by segment. The buyers assigned to socioeconomic status (A) and (B) who are active during the crisis are mostly buying to upgrade their home. While those in status (C) are mostly buying their first home. While other sectors may have been deeply affected by the crisis, the impact on Real Estate sector has been “manageable” as the CSO of Landmark Sabbour would put it. This could be mainly because the sector is greatly supported by the government. For example, in March 2020, the Central Bank of Egypt has reduced interest rates by 300 basis points setting the lending rate at 10.25 %. A move which experts hailed as great for the industry as a decrease in the lending rate and accordingly in Financing cost will make the sector more attractive for investors as it will likely increase the real estate valuation. How much were the Real Estate developers affected by this? The current market conditions have suffered from the pandemic and caused an increase in downward pressure on operations and sales volumes, resulting in landlords offering rental exemptions to support tenants. This is expected to reflect even further in the second half of this year provided the temporary lockdown of all retail operations and other preventative measures remain active Many experts & real estate developers believe that the residential market will not be very much affected as people still need to buy homes and that the market now is weaker, they would be more encouraged to move on with their plans. However, the real estate sectors that are expected to be hit the hardest are Luxury homes, Retail and F&B and the hospitality sectors In Cairo that has the bigger stock of units in Egypt, merely 135 residential units were delivered in the first quarter of 2020, keeping the total residential stock almost unchanged at 159,000 units as mentioned above. Around 58,000 units are expected to be completed over the remaining 9 months of the year. However, given the current market conditions and a potential slowdown in demand, on the back of negative sentiment and contraction of household incomes, we remain cautious of the timely delivery of projects and can expect these to spill over into 2021/2022. A large amount of future supply currently under construction in East Cairo has put downward pressure on sale prices over the quarter. Meanwhile, the shortage of supply in 6th of October makes it the better performer in Q1 2020. How will the pandemic affect the sector? Digitization: One dimension that COVID-19 certainly accelerated is the pace of digitization in the sector. Given the necessity of keeping a social distance, most real estate companies are now encouraged to rely more on digital solutions including augmented reality (AR), virtual reality (VR), and 360° virtual panoramic tours. For example, Iwan development started to progress its sales digitally by promoting its projects online and using different digital channels to provide payment plan options for clients. In addition, Tabarak developments are encouraging their clients to communicate and pay their installments using digital channels. The interesting part is that, not only the private sector is interested in the digitalization of the sector but the government as well. According to Khaled Abbas, Deputy Minister of Housing, Utilities, and Urban Communities for National Projects, the digital transformation of the sector is “inevitable” which was obvious in the usage of online services for the government’s offering of units and land in the Beit Al Watan project. Healthcare Boom: According to a report by Coldwell Banker that was released in April 2020, the Covid-19 crisis is expected to increase the health awareness of many Egyptians which would lead to an increased demand for healthcare facilities that by role will help in flourishing the sector as a whole. Loay Sherine - Senior Analyst Sources: https://i.aqarmap.com/covid19/Aqarmap-COVID19-Study-Detailed-Summary.pdf https://www.jll-mena.com/content/dam/jll-com/documents/pdf/research/emea/mena/jll-real-estate-market-overview-cairo-q1-2020.pdf https://www.zawya.com/mena/en/business/story/Cairos_real_estate_stable_in_Q1_despite_Covid_challenges_JLL-SNG_173817781/ https://www.savills.sa/insight-and-opinion/news/298327/egypt-s-strong-economic-fundamentals-to-support-speedy-recovery-from-the-covid-19 https://invest-gate.me/features/will-business-move-forward-in-the-time-of-corona-2/ https://wwww.dailynewssegypt.com/2020/05/18/covid-19-to-accelerate-real-estate-company-digitisation-developers/ https://www.cbe.org.eg/_layouts/15/download.aspx?SourceUrl=%2Fen%2FEconomicResearch%2FPublications%2FEconomicReviewDL%2FEconomic%20Review%20Volumes%20Vol.58%20No%204%202017-2018.pdf Page 98
Over one year ago, on November 3rd, 2016, the Central Bank of Egypt floated the Egyptian pound in an attempt to stabilize the economy which had been set back by a shortage of foreign currency inflows and political instability. Among the key goals behind the floatation was to meet one of the key demands of the IMF to secure a $12bn loan, boost external competitiveness through a weaker currency, encourage foreign investors back to the country through a more transparent economy and to end the currency black market which was trading at double the price set by the CBE at the time of floatation [1] [2]. To assess whether the goals behind the floatation have proved to be successful this past year, we must look back to the situation that led to the decision. The government had attempted to float the pound several times prior to the 2016 floatation. In 2003, the government partially floated the pound to decrease in value against USD from EGP 3.85 to EGP 6.86 while being traded at EGP 7 to USD in the black market. The floatation decision in 2003 resulted in an increase in exports from $7.1bnin the 2001-2 Fiscal Year, to $10.4bn in 2003-4. Inflation increased from 2.9% in January 2003 to 17.3% in December 2004. Based on a 2007 World Bank study on the impact of the devaluation of the pound between 2000 and 2005, there was a decline in the consumption of Egyptian families to an average rate of 7.4 percent, leading to a 5.1 percent increase in the number of poor families, from 16.7 percent to 21.8 percent [3] [4]. Sources of Foreign Currency to Egypt in 2014 and 2015 In 2011, the Egyptian economy, still recovering from the 2008 world financial crisis, was also hit by political instability that also contributed to the decrease of foreign currencies inflows [1]. [visualizer id="3914"] Exports Exports, which is one of the main sources of foreign currency, decreased from $26.3bn and $31.5bn in 2010 and 2011 to $21.9bn and $22.5bn in 2015 and 2016 [5]. Remittances Lower oil prices and the fall in economic growth in the Gulf also indirectly had a negative impact on the Egyptian economy since many companies were laying off employees, of which many were Egyptians. This resulted in a drop in total remittances into Egypt of about 15% year-over-year in May 2016 [1] [2]. Tourism The tourism sector, a major source of foreign currencies before the 2011 revolution, was severely hit after a sequence of terrorist attacks in Egypt. The biggest hit was on October 31, 2015, when the Russian Airbus A321 was hit over Sinai peninsula shortly after takeoff from Sharm El-Sheikh killing the 224 passengers on board resulting in several countries suspending their tourism inflows to Egypt [6]. Suez Canal Fees Suez Canal, the fastest shipping route between Europe and Asia and one of Egypt’s main sources of foreign currency was not an exception to the slowdown that faced the other sources of foreign currencies. Despite the completion of the ambitious $8.2bn parallel canal in August 2015 with a goal to increase revenues to $13.4bn in 2023 from $5.5bn in 2014, revenues have been decreasing since the opening of the new canal affected by a slowdown in the global economy. Annual revenue of the canal totaled to $5.2bn in 2015 and declined by 3.2% to $5bn in 2016. In July 2017, canal revenue reached $2.9bn. Based on these figures, the $13.4bn revenue goal by 2023 is highly unlikely [7] [8] [9]. Foreign Direct Investments Before the floatation decision on November 2016, the government tried several economic reforms which proved to have temporary effects because they did not tackle the main problems but rather reduced the severity of their effects. During the months that preceded the floatation, the CBE put a cap on the amount of dollars businesses or individuals can withdraw to ease the pressure on bank reserves. The cap included a maximum of $1,000 for travelers providing valid visa and flight tickets, $3,500 per month for travelers using their credit cards abroad and $50,000 to $250,000 for businesses to cover basic imports, given that banks had the right to determine the amount based on the necessity of the imported goods [10] [11] [12]. This step had several impacts on the economy and society. First, it reduced the pressure on bank foreign reserves as banks already had unmet commercial demand for dollars estimated at around $8bn to $10bn by the time of devaluation but it also flourished the currency black market where individuals and businesses resorted to cover their dollar needs that banks could not provide [1]. While this step was seen by many as one of the main reasons behind the expansion of the black market, this step led prices to increase gradually in the months that preceded the devaluation because most businesses priced their products according to the value of dollars they import with, which was mostly obtained through the black market as 90 percent of imported consumer goods were already being paid for at black market currency rates in the months before the devaluation [13]. EGP to USD Exchange Rates (2010-2017) By that time, the devaluation prices were already adjusted/adjusting to the price of the black market which was around the same price after the devaluation. So, at the floatation period, prices increased but not by the same value the pound depreciated. Single reform proved inefficient in the past so parallel to the floatation decision, the Egyptian government took several measures to ensure the success of its wider economic reform program. CBE hiked interest rates by 300 basis points to limit the inflation that's likely to follow the weaker currency [1]. Agreed reforms with the IMF include increasing the government’s income from tax sources via the implementation of the Value Added Tax (VAT) and introducing a law to speed up the resolution of tax disputes and settlements, and in view of a different structure of progressive salary tax rates [2]. Central Bank of Egypt Interest Rates (2009 - 2017) The government also began to restructure its subsidy program. A five-year energy subsidy reform program began in 2014 aiming at stopping energy subsidies by 2019. Electricity prices increased by 25-40% depending on usage in August 2016 [2] [10]. In July 2017, Electricity prices increased again by 15-42% for domestic use and by 29-46% for the commercial Sector [14]. Fuel prices increased 2 times since floatation [15]. The government is moving into a cash-based subsidy system, where the less fortunate get their subsidies in cash, rather than subsidizing food commodities and fuel for all [2]. In addition, an infrastructure intensive works policy were launched such as the construction of a new $45bn administrative capital [16], the construction of the third metro line in Cairo, the expansion of the port of Sokhna and the renovation of the rail and road network, which offers numerous investment opportunities to foreign companies [2]. A new investment law was also passed to attract more foreign investors. According to the new law, investors have the right to finance the project from abroad in foreign currency and are entitled to derive profits, transfer profits abroad, or liquidate the project and transfer the output of liquidation abroad [17]. Foreign employees of investment companies have the right to transfer their compensation abroad. Investors can also recoup half of what they pay to acquire land for industrial projects if production begins within two years and have a 50% tax discount on investments made in underdeveloped areas [18]. Post-Devaluation Right after the devaluation decision, the Egyptian stocks soared, with the country's main stock index, the EGX30, rising by about 8% [1]. In less than a week, EGX30 hit a five-year high. Foreign investors and institutions, including Gulf-based investors, were on the buying side, only local investors were sellers. This was a quick and strong sign of a renewed confidence that international and regional investors have in Egypt’s economy [2]. Egypt's Inflation Rates (2011-2017) Corporate executives claimed they will be able to make investment decisions based on a transparent, predictable currency market run by banks, rather than an opaque black market in dollars that swung wildly amid profiteering and speculation. “Before, I used to say we were moving in the dark. We couldn’t see because the situation was so blurred. Now at least we have the lights turned on,” Hani Berzi, chairman of Edita Food Industries [13]. Furthermore, the CBE approved commercial banks to sell USD to clients looking to repatriate profits. Whilst the effect of this decision on the stock market was optimistic, businesses with M&A transactions in the pipeline have been in a better situation as a foreign investor who was not willing to bring money into the country with no guarantee of getting their profits out, are now more comfortable investing in Egypt [2]. Egypt's Foreign Reserves (2011-2017) On the other hand, a percentage of Egypt’s population moved below the poverty line overnight following the EGP floatation [2], the devaluation ate into the incomes of many Egyptians, seeing their savings divided by half overnight. Among the middle classes, travel abroad has become harder, students saving to study overseas, and luxury goods became unaffordable for many. “We are now calling it Black Thursday,” one Egyptian said referring to the devaluation day [13]. One Year Later One year after the floatation, “Egypt is in a better place than last year,” says Chris Jarvis, the IMF mission chief for Egypt. “I think they have already taken the most difficult steps on the macroeconomic level and what remains is to continue [with the reforms]. But it doesn’t involve a lot of big adjustments, certainly not over the next few months.” As foreign inflows have increased, and remittances have picked up, foreign reserves have increased from $19bn in October 2016 to $32bn at the end of November 2017 [19]. According to the Global Competitive Index 2017-2018, Egypt is the most-improved country in the Middle East and North Africa compared to the previous year ranking. Egypt ranked 100 out of 137 in GCI 2017-2018 compared to 115 out of 138 in GCI 2016-2017 [20]. However, for Egyptian businessmen, the resolution of one problem has triggered a new set of challenges: soaring inflation and rising borrowing costs. These issues are causing some companies to put their expansion plans on hold. Firms that have foreign currency debt have been left exposed after the pound lost half its value after its flotation. Manufacturers who rely on imported inputs have seen their working capital fall by as much as half. Inflation running at around 30 percent has also hit the buying power of customers. “People are borrowing for working capital, but the risk does not justify a long-term capital investment. You have to be making sustainable profits in the order of 30 to 35% in order to take loans at 22 to 24%,” Omar al-Shenety, Managing Director of Multiples Group, a private equity firm and investment bank [19]. Egypt has become a more affordable destination than before, as a travel or investment destination, both should lead to an inflow of foreign currency and Foreign Direct Investment (FDI) into the market and increased economic activities. However, there is a time lag, as investors will only start coming once they feel that the USD: EGP rate has reached stability and that the speculation/high volatility periods are unlikely to occur again. The country is now well positioned to compete in global markets. Egypt's exports should continue increasing as it is now able to offer a more competitively priced product amidst global competition. There is good potential for local manufacturers to seize the opportunity of the current high cost of imports, by offering competitive, and more affordable locally produced products. Companies can now benefit from the free float as forex losses will now be recognized by the tax authority [2]. The low cost of labor is creating jobs, especially for young people with digital technology and foreign language skills. Customer service giant Teleperformance, which fields calls for corporates like Expedia and Vodafone, has shifted jobs from Greece to Cairo, where wages are as much as 60% less than in Europe. Uber’s general manager in Egypt said “Things are moving in the right direction. In less than two years we have hired 50,000 drivers. Necessary changes that should have happened years ago are finally happening. This is the time to put the perfect platform in place and lay the groundwork for future growth in Egypt” [21]. The IMF foresees a series of improvements in the coming years. For starters, real GDP is likely to increase from EGP 1,995bn in 2017 to EGP 2,607bn in 2022. Real GDP per capita is likely to increase from EGP 21,628 in 2017 to EGP 25,218. The total investments as a percentage of GDP are likely to increase from 15.6% in 2017 to 20.1% in 2022. Inflation is likely to decrease from 23.5% in 2017 to 7% in 2022. Unemployment rates are likely to decrease from 12.2% in 2017 to 5.3% in 2022. Government revenues are likely to increase from EGP 748bn in 2017 to EGP 1,678bn in 2022. All these metrics are positive forecasts for the future of Egypt. However, the question that remains is will these macro improvements enrich the lives of Egyptians? Will wage inflation be able to catch up with the price inflation anytime soon? For that, only time will tell. Ahmed Khalil and Yahia El Ghandour, Associates at Infomineo. Sources: [1] Egypt just massively devalued its currency — here's what happens next [2] The EGP Devaluation: A new beginning [3] A look at the last time Egypt floated the pound in 2003 [4] The Welfare Effects of a Large Depreciation: The Case of Egypt 2000-2005 [5] Trade Map [6] CHRONOLOGY OF ATTACKS on TOURIST TARGETS IN EGYPT: a DETAILED HISTORY from 1992 to the PRESENT. [7] Egypt's Suez Canal revenues 'driven down by slowing global economy' [8] New Suez Canal income slowly sinking [9] Egypt's Suez Canal revenues jump to $446.3 million in July: Reuters calculations [10] Al-Arabia [11] Al Youm 7 [12] Al Badel [13] Egypt to face pain before gain after massive currency devaluation [14] BBC Arabic [15] The Fuel Prices [16] Egypt plans to build new administrative capital east of Cairo [17] Egypt enacts new investment law to promote foreign investments [18] Egypt's New Investment Law: Opening Egypt for Business [19] Financial Times [20] The Global Competitiveness Report 2017–2018 [21] Like a phoenix, Egypt economy is rising from ashes [22] IMF
Although sub-Saharan Africa has not been famous for its status as a leader in female inclusion within the economic sector, African women are surprisingly beating the odds and defying the obstacles in the field of entrepreneurship in the region. High Female Entrepreneurship Rate Holding a comparison between some of the most developed economies in Africa and in other regions, Nigeria outranks the US and the UK in terms of percentage of entrepreneurs among women with a rate of 41% for the African country against 10% and 5.7% for the two developed countries respectively. Yasmin Belo-Osagie, co-founder of the organization She Leads Africa, stated that, “Sub-Saharan Africa has the highest rate of female entrepreneurship across the globe, with more women starting businesses in Africa than anywhere else in the world.” The extent of the presence of female entrepreneurs is, however, not symmetrically spread across all African countries. Some strong leaders do drive up the rate in the region, namely Kenya, Ghana, Nigeria and Zambia. In fact, the percentage of female entrepreneurs in the three latter surpasses 50% of their total pool of entrepreneurs. Barriers to Female Entrepreneurship The aforementioned figures become even more impressive when considering that the road for African female entrepreneurs is not paved with roses. Women entrepreneurs are facing and circumventing various obstacles pertaining to the social context prevalent within their countries. The dominant culture in sub-Saharan countries is still one that expects women to hold a traditional role confined to home making and child rearing. This has been supported by a study published by the French Development Agency in 2013, which reported that “Time surveys from 11 cities in sub-Saharan Africa show that women spend more time on domestic activities than their male counterparts regardless of household status—head of household, wife, or daughter.” Hence, society might not be open to female entrepreneurs pursuing business ambitions that would take them away from their homes. Business is all about networking. Well, that’s another closed door in the face of African women. Indeed, most networking events take place in mostly male-dominated venues, such as bars of membership clubs, where a woman’s presence by herself might be ill-perceived by social standards. African female entrepreneurs also have limited access to finance in comparison with their male counterparts. Experts estimate the unmet yearly financial needs for women-owned businesses worldwide to be between $260 billion and $320 billion. According to the 2014 Findex report, only 30% of women in sub-Saharan Africa have access to bank accounts. Besides, women in Nigeria and other developing economies have shown to be 20% less likely than men to have a bank account and 17% less likely to have borrowed formally. Factors such as legal restrictions on women to open bank accounts without a male relative’s authorization do contribute to the low account penetration rate among women in the region. Initiatives for Female Entrepreneurship Development Despite the presence of these barriers, there are various development initiatives set in different African countries aiming to alleviate the difficulties and promote female entrepreneurship. In east Africa, 1,200 micro-businesses and 200 small and medium businesses benefited from the Women’s Entrepreneurship in Renewables Project (wPOWER) since its launch in 2013 by the U.S. State Department. The aim of the project was to train female solar entrepreneurs in business management and project financing. In Zambia, the “WECREATE” program launched by USAID has mentored 28 female potato farmers in 2015 on how to expand their business operations. MasterCard has, on its part, committed to three partnerships directed at promoting women entrepreneurship in Egypt, Nigeria and South Africa. These partnerships will be centered on providing young African women with the necessary education, training and mentorship to develop financial literacy, and providing them with easy access to a network of women with an interest in entrepreneurship. Empretec, a capacity-building program created by the United Nations Conference on Trade and Development (UNCTAD) that assists aspiring and female entrepreneurs in strengthening their entrepreneurial and business skills, was recently launched in Kenya, Ghana and South Sudan. The second batch of 40 female entrepreneurs completed the Empretec course on entrepreneurial skills in South Sudan in October 2016. The legal situation in the region is improving as well. According to the World Bank’s 2014 Gender at Work Report, sub-Saharan Africa has reduced the number of gender discriminatory laws against women, mainly regarding property ownership and inheritance rights, by more than half between 1960 and 2010. To sum it all up, African female entrepreneurs are fighting their way to the top despite discouraging cultures and unfavorable business environments with the increasing support of international organizations, local governments, and corporate sponsors that channel their resources and expertise into helping female entrepreneurs fulfill their ambitions. Meryem Khaled, Associate at Infomineo References [1] http://www.idgconnect.com/abstract/10416/sub-saharan-africa-highest-female-entrepreneurship-rate-globally [2] http://documents.worldbank.org/curated/en/884131468332686103/pdf/892730WP0Box3800report0Feb-02002014.pdf [3] http://thenationonlineng.net/financial-inclusion-can-boost-women-entrepreneurship-others/
On Tuesday 19th of April, Egyptian media announced that the US Dollar exchange rate exceeded 11 EGP in the black market; a news that caused unprecedented panic across all sectors of the Egyptian society. On the other side, Tarek Amer, Governor of the Central Bank of Egypt (CBE), has denied any intention of devaluing the Egyptian Pound below its current value (0.11 USD), he also blamed the US Dollar hike on informal market speculation, where the demand comes from importers attempting to duck CBE’s restrictions that prohibit banks from trading US Dollars in the formal market to cover the imports of non-essential goods.[1] To address this problem, CBE has recently revised the mechanism for providing US Dollars to the banks in the Egyptian market. Before that, CBE was using a quote system by selling a fixed volume in US Dollar at weekly auctions, the new mechanism requires banks to submit requests detailing investors to the CBE, and then the CBE creates reports about investors before allocating US Dollars to oblige banks to allocate the currency in the products approved by the CBE for imports[2]. Beside this mechanism, the CBE has exerted a lot of efforts to curb the black market speculations through currency devaluation, shutting down violating currency exchange companies and eased restrictions on Dollar deposits from 50,000 USD to 250,000 USD for importers of food, machinery, spare parts, capital goods and medicine while kept it the same for individuals.[3] But those actions seem to have failed; as the Egyptian Pound kept depreciating against the US Dollar, this event started a widespread debate across the Egyptian media about the inevitability of devaluating or rather floating the Egyptian Pound. JP Morgan, a US-based financial services firm, expected in a report issued on the 15th of March, that the Egyptian Pound will be devalued by 35% in 2016, 14% of the 35% devaluation will be through the CBE beside further progressive changes. The report also added that this result will end up with an International Monetary Fund (IMF) loan before the end of the fiscal year. And it is quiet known, that the IMF requires structural reforms in the economy to reduce government expenses and to increase revenues which is referred to by Fiscal consolidation, and also oblige government to decrease subsides and protective measures. Eventually, the Egyptian government will be between the hammer of tough economic decisions and the anvil of economic failure. [4] For the Egyptian Economy that depends mainly on imports devaluating or floating the Egyptian Pound is viewed as a Big no-no!, because since devaluation or floating was introduced in the mid-seventies, the inevitable result was a dramatic increase in prices, which will burden the mid and low income classes in Egypt. The first actual floating of the Egyptian Pound was executed by President Sadat in 1977- first actual floating but implicitly executed along with other austerity measures that lead to 1977 Egyptian bread riots, EGP lost 50% of its value - at this time Egypt was in a budget deficit due to war spending in the period from 1967-1973, the Egyptian government back then started external borrowing to cover its debts which is known by “Paris club debts”; but along with the failure in balancing government budget, lack of Arab investment and economic inactivity in the eighties, private sector started to borrow in US dollars which lead to the bankruptcy of several businesses, and the US Dollar crisis officially began to take place, where US Dollar exchange rate became 0.8 EGP instead of 0.4 EGP.[5] As the figure shows, the USD exchange rate kept rising since 1968 and it reached its peak after floating the Egyptian pound in 2003. Floating the Egyptian Pound was first introduced in 2003 - Public First acquaintance with the term - when the Egyptian government chaired by Atef Ebied decided to float the Egyptian Pound, this decision lead to the depreciation of the Egyptian Pound against the US Dollar by 50%. The US Dollar exchange rate before floating the Egyptian Pound was 3.40 EGP, but afterwards it reached 5.50 EGP, then 7 EGP, then it stood at 6.20 EGP, this action lead to a dramatic increase in prices shown the figure below. Figure shows dramatic increase in inflation rates after 2003 where Egyptian government started to float the Egyptian pound, and in 2008 after the international financial crisis. After the international financial crisis in 2008, the situation was aggravated as Egypt suffered an economic setback reached its peak in 2011 after the 25th of January revolution followed by unrest and political instability which lead to a substantial fall in tourism, foreign investment, Suez Canal revenues and Egyptian expats transfers.[6] The impact of the crisis is explained more subtly in the below examples: Suez Canal Investment Certificate: it was a kind of certificate sold by the four major public banks to generate 64 billion EGP to fund new Suez Canal project, the certificate expected return was 12%, with Egyptian Pound devaluation by 14%, people invested in those certificates lost 2.5% of their investment, Decline in Salaries’ purchasing power by 14.5% for each one pound. Inflation of Inflation: Prices of goods will increase and inflation rate will be 10% at least and expected to increase to 20% according to importers,[7] General Motors stopped its operations in Egypt as it can’t release its production supplies withheld at the Egyptian Customs due to lack of US Dollar.[8] The reasons making Egyptian Pound devaluation is not the best option is that economy cannot be controlled only by monetary policy, giving the fact that economy is affected by other factors other than fluctuations in the money market: Inflation rate caused by trade deficit, where trade deficit is take place when imports exceed exports, which leads to currency depreciation where there is no demand on the country’s currency reflected by its goods, is totally different from inflation rate caused by increase of money supply over supply of goods and services, Importing goods is also importing the inflation rate of the exporting countries, which make it a compound inflation, Increasing budget deficit, public and foreign debts and the interest rates, Trade deficit created by low demand on national currency and inefficient production, Decrease in GDP, which also reflects country’s ability to produce or the economic vitality.[9] Mohamed El-Erian who was appointed by the Egyptian President on the 26th of November 2015 to be a member of the CBE coordinating council that manages fiscal and monetary policies, to advise the CBE, presented a proposal to address the US Dollar crisis, the proposal warns the floating of the Egyptian Pound without adopting effective economic measures which includes controlling imports according to priorities, linking Egyptian Pound to foreign currencies portfolio and abandon US Dollar peg, and increasing the interest rate on the Egyptian pound to avoid Dollarization of Egyptian business and increasing foreign investment.[10] On the same page, Ahmed El-Sayed El-Nagger, economic expert and chairman of Al-Ahram daily - Egypt’s first public newspaper - suggested applying monetary rule of national currency sovereignty, which means obliging investors to deal only in Egyptian Pounds in the Egyptian market to strengthen the national currency and controlling imports according to priorities and facilitating investment procedures by applying one-stop-shop in all Egyptian governorates. [11] He also challenged the IMF claim that currency devaluation will increase demand on domestic goods as the demand on these goods is affected by different variables which is slow growth rates: 1.8%, 2.2%, 2.1%, 2.2%, 4.2%, in years 2011, 2012, 2013, 2014, 2015, respectively and trade deficit that is 38.8 billion EGP in 2014/2015.[12] He added that controlling or decreasing imports is an inevitable choice not only for developing countries but also for developed countries, as the United States following the International financial crisis decreased its imports from 2166 bn USD in 2008 to 1604 bn USD in 2009, according to Direction of Trade Statistics Year Book 2014 issued by the IMF, and also Asian countries like Malaysia, Singapore and South Korea done the same after the crisis of 1997, but on the contrary Egyptian imports is still increasing.[13] Beside those economic measures, it is also important to solve the security issues that affected tourism sector, another alternative for tourism revenues to offset the fall in Russian tourism is attracting Iranian tourism; which is enjoying economic boost after lifting international sanctions. In this context, the Egyptian ministry of tourism is planning to attract 200,000 tourist by the end of 2016, [14]as the ministry’s studies state that the average daily spending of the Iranian tourist is between 170-180 USD, which is higher than the European tourist who spend between 80-85 USD.[15] The Egyptian Pound value against the US Dollar has been viewed throughout the past years as the key indicator of the Egyptian economy, Egyptians fear a similar scenario in neighboring country like Lebanon which suffered from tremendous devaluation after the Lebanese civil war that made 1 USD worth 3000 Lebanese Pound. The Egyptian Pound depreciation is a symptom of a bigger issue in the economy that requires crucial measures and structural reforms for Egypt to regain its position as an economic key player in Africa and the Middle East. Hazem Adel, Business Analyst/Translator at Infomineo, Know more about Hazem [1] Daily News Egypt: Amer denies plans to devalue Egyptian pound after its price falls in informal market [2] Daily News Egypt: CBE revises mechanism of US dollar allocation [3] Bloomberg: Egypt Central Bank Eases Restrictions on Dollar Deposits [4] Daily News Egypt: JP Morgan expects further EGP devaluation, IMF loan deal [5] http://bit.ly/1UFrrLb [6] http://bit.ly/1TXfvlE [7] http://huff.to/1VO9xIs [8] http://bit.ly/23U6uBu [9] http://alamalmal.net/Detail.aspx?id=3466 [10] http://www.almasryalyoum.com/news/details/906700 [11] http://www.ahram.org.eg/NewsQ/448882.aspx [12] AhramOnline: Devaluating the Egyptian pound, big difference between theoretical and practical results [13] http://www.ahram.org.eg/NewsQ/483731.aspx [14] The New Arab: Despite political rivalry, Egypt seeking to lure Iranian tourists [15] http://bit.ly/28mO0M4
The IT outsourcing market is shifting rapidly. The growing globalization with all the new emerging locations, such as Mexico, Philippines, China, Malaysia and Poland, are replacing the typical India-centric onshore-offshore model. (more…)