High interest rates carry multiple risks to future of investment in Egypt: EJB

Doaa A.Moneim , Wednesday 1 Feb 2023

High interest rates carry multiple risks to the future of investment in Egypt. They negatively affect investment due to high financing prices, which in turn affect the ability of businesses to obtain the local financing necessary to build factories and expand, stated the Egyptian Junior Business Association (EJB) on Wednesday.

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On improving the investment climate in Egypt and attracting foreign capital over the next six months, the EJB shared its vision exclusively with Ahram Online in which it stated that interest rate spikes are always applied in light of the Egyptian deflationary policy to aggregate demand and absorb liquidity from the market.

“This affects the market's movement. Therefore, the best way to improve the investment climate in the future is by announcing monetary policies that ensure the stability of monetary, commercial, and economic policies to raise the confidence of Egyptian and foreign investors,” the EJB added.

The association noted that this could strengthen investment incentives and ensure their implementation, while controlling administrative systems governing investment. The systems include the establishment of companies, licensing, facilitating industrial lands and making them available to investors at low prices. It will also help if other incentives for manufacturers were announced. Taking advantage of the current crisis prompted many companies to return to work in Egypt, such as BMW and OPPO.

Moreover, seizing the power of the Egyptian market and the volume of consumers, as well as the existence of more tax control mechanisms, strong oversight of tax system, and the inclusion of all companies in the system will ensures expansion and fair competition, the association pointed out.

Foreign investors are worried about accessing the local market in light of the shortage of foreign exchange, which makes it difficult to transfer funds abroad. 

Uncontrolled fluctuation in the exchange rate will yield great losses for foreign investment. Hence, the exchange market should be controlled because it affects many production derivatives, according to the EJB vision.

The association called on the CBE to set its monetary policies for at least a year, whether these policies are deflationary or otherwise.

“The clarity of vision enhances confidence in the national economy and ensures restricting aggregate demand to address inflation levels, decrease the possibility of recession, and ensure the continuation of buying and selling at specific levels to not cause stagnation."
It is important to enhance production incentives and ensure regularity in the disbursement of export subsidy dues. It is also imperative to provide foreign exchange and stability in the market through policies and marketing support for investors and exporters due to stagnation in supply chains caused by the difficulty to obtain raw materials, the association continued.

The EJB vision stressed that the Egyptian economy is suffering due to global crises. Accordingly, it believes that ensuring the stability of the foreign exchange market is the main determinant in all developing countries to facilitate the exit of investors' foreign exchange.

The Central Bank of Egypt’s Monetary Policy Committee is scheduled to convene on Thursday to review key interest rates.

The meeting, which is the first to be held in 2023, is also the first since the approval of the new IMF-backed loan deal programme with Egypt extended over 46 months.

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