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Euro fluctuations irks Egyptian exporters

Recent depreciation of the euro might negatively affect Egyptian exports to Europe

Mona Al Fiqi (Al-Ahram Weekly), Friday 10 Dec 2010
Euro
Euro fluctuation weighs on Egyptian exports. (Photo: Reuters).
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Over the past few months, economic trouble in the euro zone caused the euro exchange rate to fluctuate. This has raised concerns that this might negatively affect Egypt’s proceeds of non-oil exports, particularly since the European Union is Egypt’s main trade partner, accounting for 36.2 per cent of the total national trade volume.

The euro was LE7.65 on Monday, LE7.61 on Sunday, compared to LE7.9 last month. Exporters complain that such fluctuations in the euro exchange price might harm their business.

Not all exporters need to worry though.

Mustafa El-Nagari, board member at the Export Council for Agricultural Products, believes that for agricultural products, the negative impact is clear since the euro exchange rate is down by a full 20 per cent since last January. El-Nagari explained that when exporting vegetables and fruits, the price of a product changes on a daily basis according to supply and demand, while for other products the price is set in advance by contract.

Still, the problem cannot be just summarised in the fluctuation of the value of the euro, for what is more serious is that the economic problems in some European countries caused a drop in demand. El-Nagari explained that because of the financial crisis, European importers are cutting their orders. To overcome this problem, El-Nagari said, Egyptian exporters need to tap different markets.

Nonetheless exporters are expecting losses. “Every penny counts, particularly in the international market where we face strong competitors such as China and India,” said Manal Mortagi, executive director of the Food Export Council.

An exporter of ready-made garments who spoke on condition of anonymity said that although this is an international issue and no one is to blame, exporters are also facing local problems.

He said that, for example, an exporter has to pay LE500 in fees every year to get the International Organisation for Standardisation (ISO) license from the Egyptian General Organization for Standardisation and Quality before exporting. “Exporters do not get any service in return and such licenses do nothing for our products. Foreign consumers care only for quality not licenses so I believe that these useless fees should be abolished to reduce the total exports costs.”

Mortagi notes that there are ways the government is helping out. She said that in order to help exporters handle the exchange rate risk and other problems such as high transportation costs, the government provides the Export Expense Recovery Programme which pays a maximum of 10 per cent of the total value of exports to exporters when they use local components. She added that the currency exchange rate is a risk exporters have to deal with.

While exporters do accept the risk of exchange rate fluctuations, they want to see more movement in the value of the Egyptian pound, argued the anonymous source.

“The value of the Egyptian pound is almost stagnant, whileother countries such as India, Turkey and Pakistan are applying procedures to devalue their local currencies to boost their exports. In these circumstances, competition is very difficult for Egyptian exports,” the source explained.

The problem, according to experts, might continue during the coming period as other countries such as Spain, Italy and Portugal are expected to face financial problems.

“If the fluctuation of the euro exchange rate continues, there are fears that it will negatively affect the total value of Egyptian exports,” said Hamdi Abdel Azeem, professor of economics and former dean of El-Sadat Academy for administrative sciences.

It could also mean that the government plan to increase Egyptian exports to LE200 billion will be difficult to be achieve, he said.

According to Central Bank of Egypt figures, the value of Egypt’s foreign trade including exports and imports registered $72.9 billion in fiscal year 2009/2010, down 3.5 per cent compared to the previous fiscal year.

 

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