Commercial International Bank Egypt

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, FX & Banking in Egypt

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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