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Treasury, FX & Banking in Egypt

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Report date:

3 Jul 2023

Commentary

Egypt has been through a tumultuous period recently, with significant economic and political turmoil, severe foreign currency shortages, and a generally difficult operating environment. In this situation, it is a relief that the country is making the headlines a lot less, so it was time to see where things stand.

Overall, the message which emerged is that the country is indeed stable, but that the recovery is taking longer than hoped. The main issue appears to be an IMF package which was agreed at the end of 2022, but whose implementation seems to be bogged down by disagreements over the timetable. Two key elements of the agreement are the liberalisation of the FX market, and the sale of some 32 companies which are currently owned by the government. Unsurprisingly, the government is seeking a longer time to execute the company sales, while foreign investors are waiting for the inevitable currency devaluation before making any significant asset purchases. It was not clear how the country would get out of this impasse.

This leaves our participants to manage through the current situation. Many are in industries which receive preferential treatment for FX, such as pharmaceutical or food related industries. However, even they frequently struggle to get FX allocations. Also, they run a variety of business models, with offshore sales in hard currency and imports for onshore sales in EGP both being common.

The picture which emerged was interesting:

The allocation of FX is not decided by the central bank. It is the decision of each bank. However, when a bank runs out of foreign currency, it can no longer process foreign remittances.
The main source of the country’s foreign currency is Egyptians working abroad, especially in Saudi Arabia and other Gulf countries.
This means it is better to work with banks who have

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Topics covered in this report:

Hedging FX, FX, Cash Repatriation, Imports

Service providers discussed in this report:

Citi, HSBC, Credit Agricole, National Bank of Egypt, Commercial International Bank Egypt, Abu Dhabi Islamic Bank, Mashreq Bank, First Abu Dhabi Bank, AHLI United Bank

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FX & Treasury in Egypt

Read more about FX & Treasury in Egypt

Report date:

1 Nov 2022

Commentary

Egypt is a challenging environment – but one which seems to work overall. The country went through a bad period in 2015/2017, when foreign currency was auctioned, and in very scarce supply. The situation then improved, but has recently deteriorated again. This is hardly surprising, given the role tourism plays in the economy, and the combined impacts of COVID and the Ukraine war.

The situation reported by all participants is that there are no formal exchange controls, but banks are rationing hard currency according to a priority system, under which essential goods, such as food and pharmaceutical goods, get paid first, and items such as services, royalties and intercompany debt are satisfied last – if there is any currency left. The way in which this is implemented varies from bank to bank, so it is vitally important to maintain good relationships with your banks. The common themes were:

Most participants sell hardware offshore in hard currency, and provide services onshore billed in Egyptian pounds. This has worked well, but the distributors are finding it increasingly difficult to get access to the hard currency.
Some are requiring LCs, on the grounds these improve the chances of getting hard currency when payment is due. However, banks are reluctant to issue them, and they can be very expensive.
Egypt is in advanced negotiations with the IMF over an aid package, which should ease the payment issues. This is expected to be accompanied by a devaluation: this is further complicating the FX

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Topics covered in this report:

FX, Hedging FX, Letters of Credit (LC), Funding, Cash Repatriation

Service providers discussed in this report:

Citi, HSBC

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Treasury & FX in Egypt

Read more about Treasury & FX in Egypt

Report date:

12 Feb 2019

Egypt is a prime example of how you need a different mindset in complex countries. Two years ago, we would have just heard tales of woe and people struggling to keep basic operations running. Now, it is beginning to work again. But for how long? These countries have cycles: it is important not to despair during the difficult periods, and not to get carried away during the good ones.