The Egyptian economy, together with the global economy, has since last March faced waves of turbulence that threatened its stability. First came the Russia-Ukraine war with its fallout of severe American and European economic sanctions against Russia, then came the decision by the US Federal Reserve System to raise key interest rate by 0.25 per cent, pumping thus liquidity from the global economy and especially from emerging markets, among them Egypt. It followed that foreign direct investment and international portfolios exited the Egyptian government debt market. Accordingly, the Central Bank of Egypt (CBE) took a number of corrective measures to control and maintain balance in the economy, market and foreign currency reserve. These measures involved limiting the US dollar supply in order to direct the cash reserve towards paying for importation of strategic goods, also to cover market needs of foreign currency and to settle Egypt’s foreign debts, especially since foreign investment had exited the market. The result was that the Egyptian pound, which had been more or less stable since it was floated in November 2016, lost some 14 per cent of its value against the US Dollar. In the span of two weeks, the value of USD1 rose from EGP15.5 to EGP18.4. Simultaneously, the CBE raised the key interest rate on EGP deposits to an almost unprecedented 18 per cent in the National Bank of Egypt and Banque Misr. This move achieved its aspired goal of containing the fallout of the loss in value of the EGP and controlling the liquidity in the market. However, it left industrialists, traders, and investors with the serious problem of shortage of the foreign currency needed to run their businesses. The question was whether the CBE’s policy to preserve the cash reserve to cater for the State’s needs can make room to provide for businesses’ needs.
The response of both Russia and China to the US-European sanctions with its shut-off of USD and Euro inflow warrants consideration. Both countries declared respective decisions that countries importing their goods should pay for them in their local currency, be that the ruble for Russian fuel, gas, agricultural and industrial goods, or the yuan for Chinese imported goods.
As the world cautiously observes the outcome of the Russian and Chinese decisions which experts expect would unsettle the throne of the dollar and euro, some in Egypt have been wondering about the feasibility of following suit with similar decisions, replacing the dollar and euro with EGP to settle dues to the Egyptian State. This should have the effect of stemming the steady demand on foreign currency and creating a counter demand for the Egyptian pound.
In this context, I recall an exchange that occurred in the mid-1990s between Dr Salib Botros (1915 – 2004) and myself. Dr Botros was an economy expert and a prominent figure in the Egyptian press, and I consider myself very lucky to have worked under his guidance in Watani and learned a lot from him. Dr Botros was the founder of Watani’s economy page; he was a great mentor to all who worked with him, not only for his economic and journalistic expertise, but also for his mastery of the Arabic language and his remarkable gentleness and courtesy.
Following Egypt’s revaluation of the EGP against the USD in the mid-1990s, the USD vs EGP value rose fourfold, which had detrimental repercussions on the market and prices of commodities. At the time, the political will did not have enough courage to take the decision of floating the pound—a decision that was only taken some 20 years later in 2016—so it just resorted to a revaluation. I asked Dr Botros whether it was possible, with view to regaining some EGP value, for Egypt to require ships crossing the Suez Canal to settle the crossing fees in EGP. Dr Botros replied that, theoretically, that sounded beneficial; but what would Egypt do with a growing EGP balance versus a decreasing balance of USD, when its imports far exceed its exports? He explained to me that adopting such policies require that the value of exports should equal that of imports or exceed them; this, he said, is the real challenge any State faces in order to impose its will on the global market. I grasped the lesson, and aspired for the day when Egypt would achieve self-sufficiency in many of its needs, also when it would limit its imports and increase its exports.
Egypt is now taking its first steps in this regard. Watani’s economy page last week reported that Egypt has stopped dealing with foreign shipping companies in USD, replacing it with EGP in the shipping business. Experts commented that the decision is expected to raise the value of EGP vs USD. Egypt has three docking stations for containers: one in east Port Said, operated by the Danish Maersk; another in Ain Sukhna, operated by the Emirati Dubai Ports; and the third in Alexandria, operated by a Chinese company. Before the recent decision, any ship or tanker that used to dock in any of the stations for uploading, off loading or maintenance, used to settle the fees in USD. But the decision by the Minister of Finance, Mohamed Maait to replace USD with EGP for these freights, is expected to shift demand from USD to EGP.
4 May 2022