As Currency Crisis Eases, Egypt Industrialists Urge Import Regulation

Egypt’s industrial federation has called for tighter regulations on imports in an attempt to ease demand for dollars and prevent a repeat of the currency crisis that has seen goods pile up at ports this year.

Mohamed El Sewedy, head of the Federation of Egyptian Industries, said the dollar crunch had hit manufacturing, with raw materials held up at ports due to a lack of foreign currency. Manufacturing growth fell to 0.2 percent in the first nine months from 9 percent in the same period of 2014.

Goods were finally released this month after state banks supplied $1.8 billion to clear the backlog and process new letters of credit, El Sewedy said.

“All the goods that were held up have left the ports now,” El Sewedy told Reuters in an interview.

Egypt, which depends on imports, has faced economic turmoil since the 2011 uprising that ended Hosni Mubarak’s 30-year rule. Foreign investors and tourists, on which the country relies for foreign currency earnings, have stayed away.

The country’s foreign currency reserves have fallen from $36 billion before the 2011 revolt to about $16.4 billion in October, leaving the central bank with little firepower to defend the Egyptian pound from mounting pressure.

In February, the outgoing central bank governor imposed restrictions on the amount of dollars companies could deposit in banks. The aim was to crush the dollar black market but it made it difficult for companies to open letters of credit.

Speaking at his office overlooking the Nile, El Sewedy said the incoming central bank governor, Tarek Amer, had met with industrialists and promised to change course.

“The direction is towards a policy that guarantees orderly markets without strangling the manufacturing sector and forcing some manufacturers to resort to illegitimate means to obtain their (dollar) needs,” El Sewedy said.

He said Amer had promised to help banks close $4 billion in dollar overdrafts opened for clients during the crisis. About $1 billion of this was supplied last week and El Sewedy said he expected the remainder to come very soon.

The central bank has not made any statement on its shifting monetary policy or said where the dollar supplies were coming from. Amer officially begins his new role on Nov. 27 but is widely believed by bankers to be working behind the scenes.

As pressure mounts on the central bank to devalue, El Sewedy said a freer exchange rate would help ensure balanced markets.

“The more the rate is fair and free, the more we are able to compete,” he said.

Egypt is increasingly expected to shift to a more flexible exchange system, as recommended by the International Monetary Fund in September and favored by many banks and businesses.

Under the outgoing governor, the central bank has allowed small and piecemeal devaluations as the pound came under pressure, but the last move — unexpectedly — was to strengthen the currency.

El Sewedy said manufacturers were pushing for stricter regulations to ensure importers do not put artificially low values on customs bills to avoid duties.

The practice is believed to be widespread, robbing the government of precious tax revenues while making it difficult for local products to compete on price.

“If I regulate trade, the appetite for dollars … will be reduced and become more orderly,” said El Sewedy.

“There is enthusiasm from the government and opposition from many people who are benefiting. We are fighting … We will have standardized imports before the end of 2015.”

Source: Reuters