Egyptian banks need more foreign currency to compete with black market: Sources

Waad Ahmed , Randa Ali , Thursday 5 Feb 2015

With tourism suffering and foreign investment lacking, traders relying on black market

Traders complain that US dollars are not available in banks in required quantities (Photo: Reuters)

Egypt's latest spate of measures against its foreign currency black market cannot succeed without an immediate increase in the liquidity its foreign currency, economists and traders told Ahram Online.  

The Central Bank of Egypt has been devaluing the currency since 18 January in an attempt to narrow the gap between the official rate and the unofficial rate offered illegally in exchange bureaus.

“Adjusting the value of the pound to narrow the gap with the unofficial rate won't be enough to eliminate the currency black market without foreign currency liquidity," Mohamed Abu Basha, Economist at the Cairo-based investment bank EFG-Hermes, told Ahram Online.

In its latest auction on Thursday, the CBE held the pound at 7.53 per dollar, days after allowing banks to trade the pound at as much as 10 piasters above the official rate.

Scarcity in the banks

A weaker pound will encourage investments as well as raise the percentage of remittances in banks, Sherif Al Diwany, head of the Egyptian Centre for Economic Studies, told Ahram Online.

Only 10 percent of the remittances earned by Egyptians working abroad, which last fiscal year amounted to some $18.5 billion a year, are deposited in the banks, CBE governor Hisham Ramez revealed in a televised phone call on Wednesday. 

Prior to the 2011 uprising which toppled the regime of Hosni Mubarak, Egypt depended on tourism, remittances and revenues of the Suez Canal as sources of foreign currency but the political turmoil took a toll on the tourism sector.

Egypt's tourism revenues halved to $5.9 billion in 2013, from its $12.5 billion level on the eve of the uprising in 2010, before improving slightly to $7.5 billion in 2014.

The government hopes to attract $10-12 billion of investments in the wake of a much-publicised economic conference scheduled for March in which Egypt will present 20 projects to investors from around the world.

But until tourism recovers and investments begin to flow back into the country, traders have no choice but to obtain their foreign currency from the black market, says Ahmed Sheiha, head of the importers division in the Cairo Chamber of Trade.

"There remains a scarcity in the foreign currency available in the banks which makes importers resort to the black market," Sheiha told Ahram Online.

Gulf Aid

One possible short-term solution could be an expected $10 billion of fresh aid from Saudi Arabia, Kuwait, and the United Arab Emirates, which is yet unconfirmed. 

The three oil-rich countries  -- all staunch supporters of the 2013 removal of Islamist president Mohamed Morsi -- together showered Egypt with $20 billion since his ouster. 

“If news about planned Gulf deposits in Egypt are right, it would serve the purpose of confining the black market temporarily,” Abu Basha said.

The central bank defended the pound against sharp devaluations after the 2011 popular uprising caused investors to flee and tourism revenues to tumble. This has led to the creation of a currency black market. The gap between the official and unofficial exchange rates widened  by more than 80 percent in 2014.

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