Ethiopia

Corporate Treasury & FX in Egypt

Report date: 
29 Oct 2024

Commentary

Several countries with the worst financial crises have decided to implement painful measures to improve their economies. We recently covered Turkey; this report is about Egypt, and Argentina will follow soon.

The measures are well known: significant devaluation (usually more than 40%), and raising interest rates to punitive levels - 30% to 50% is the norm. The impact on the domestic consumer is significant, but the early signs are that there is some improvement. Inflation levels are generally coming down, foreign exchange shortages have begun to ease, and foreign businesses are starting to have greater confidence, though all remain cautious.

This is certainly the case in Egypt: participants on the call all reported business levels which were difficult but not dire, and less difficulty repatriating funds. Inflation has been 36%, coming down to a reported 26% in September 2024 – but with a peak of 70% to 90% on some key food staples.

Sadly, geopolitics cannot be ignored. Turkey and Egypt live in a troubled neighbourhood: Egypt has a border with Gaza - a massive influx of refugees could destabilise the country. Its own recent history is one of constant conflict between more radical religious elements and governments which tend to be authoritarian, but relatively secular and pro business. Importantly, the United Arab Emirates and Saudi Arabia were cited by participants as a major source of foreign investment, which has considerably helped with the foreign exchange situation. In particular, the UAE has signed a multi billion dollar agreement for the development of a significant area on the Mediterranean Sea – the precise amount is not certain, but it appears to be at least USD 15bn, with total value potentially being above USD 100bn.

There is a problem on the southern border as well: Ethiopia is building a dam on the Nile. Egypt takes a very dim view of this – but it is not receiving much publicity.

What does this mean in practical terms?

  • Pressure to use documentary credits (LCs) has....
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Topics covered in this report: 
Bank Relationships, FX, Hedging FX, Letters of Credit (LC), Customs, Factoring, Cash Repatriation
Service providers discussed in this report: 
Standard Chartered, HSBC, QNB, Citi, SWIFT, Commercial International Bank Egypt

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Treasury & Banking in Ethiopia

Report date: 
22 Mar 2022

Commentary

Ethiopia is a deeply troubled country: it was the site of a major famine in the 1980s, and has a long history of civil and other wars, which have resulted in some former regions now being independent states. It has also had a series of revolutions, and turmoil continues to this day.

In these circumstances, business is – unsurprisingly – difficult, with foreign currency being difficult to access. Despite this, participants generally have successful businesses, with a remarkable consistency in approach and problems:

  • Most businesses provide infrastructure type hardware products. Typically, the hardware is sold outside the country, and paid for in hard currency. Warranty and maintenance services have to be provided onshore and billed in local currency – it is very difficult to remit the profits back to HQ, and trapped cash builds up.
  • The hardware imports are usually covered by LCs – but these can be expensive (up to 11%), and difficult to obtain. It is also not unusual for their settlement to be late, by up to nine months is one case.
  • No international banks operate in the country. This leads to the following issues:
    • The local banks often do not speak English, and have a tendency not to turn up for meetings when they have been arranged.
    • This often results in a need for face to face meetings, which can be challenging, with current travel restrictions
    • There is a need to recruit and maintain local staff to manage the resulting relationships – most treasurers do not like doing this.
    • Most processes are...please sign in to continue reading
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Topics covered in this report: 
Banking, Corporate Treasury, FX, Cash Repatriation, Letters of Credit (LC), Intercompany invoices, Sovereign Bonds
Service providers discussed in this report: 
Mashreq Bank, Nib International Bank, Wegagen Bank, Zemen Bank, Commercial Bank of Ethiopia, Awash Bank, Dashen Bank, Bunna Bank, Behran International Bank

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