by Ahmed El-Mahdi
The government is permitting foreigners who work in the stock market to transfer their US dollar profits, even though the industry community is in dire need of US dollars
Muhammad Omran, the chairman of the Egyptian stock market, has announced that the governor of the Central Bank of Egypt (CBE) has approved the payment of 50 per cent of the money of foreign stock market investors held before the year 2013 because of the unavailability of foreign currency in the local market, which in the past was the main reason for the prevention of external transfers.
At the same time as Omran’s announcement, a number of leading industry figures emphasised the continuation of a crisis for local industry, which is suffering from a critical US dollar deficiency to buy necessary raw materials. This could threaten the whole industry sector, and they are demanding that the government intervene urgently to review the CBE’s decision, which relates to limiting the monthly deposits to a maximum of US$50,000.
The decision presents a huge dilemma for Egyptian industry. Despite the fact that the industry leaders speak of an ongoing dollar scarcity crisis, the Egyptian Industries union has said that there is complete coordination with the CBE to provide the manufacturers with sufficient hard currency to satisfy their needs for raw materials and imported production supplies to continue local industry operation.
will Khaled Abou al-Makram, chairman of the plastics division of the Chamber of Chemical Industries in the Egyptian industries union, says the CBE’s decision to limit monthly deposits to US$50,000 will rebound negatively on the factories because they will be unable to transfer the value of imported shipments, and this will lead to containers being late at customs. Makram points out that this will force manufacturers to pay ground fees to both customs and shipment companies, in addition to forcing them to open several bank accounts with different names so as to be able to transfer the value of materials. He says that the CBE was alerted to this and issued a decision to prevent internal transfers, placing the manufacturers in a dilemma. Makram admits that the CBE decision is good in terms of facing up to the black market, but on the other hand the way of applying it is harmful to the industrial sector. It must therefore be amended to strike a balance between satisfying the needs of the factories for dollars and eliminating the black market.
Makram is
demanding that the government quickly support export operations by increasing the dollar outcome in the private banks, especially since the export income last year amounted to about LE130bn, equivalent to US$30bn.
Mohie Hafez, the chairman of medicine committee of the investors association, says the dollar scarcity crisis remains the same but the industrial sector’s suffering will increase following the CBE decision, which has placed companies that import raw materials in a real dilemma.
“The sector imports 99 per cent of its production supplies with about LE6bn to LE8bn yearly, despite the government giving first priority to providing medicinal manufacturers all the foreign currency they need,” Hafez says. “There is a long list of medicines factories that have also been forced to open bank accounts in different banks to increase their daily deposits.
“Medicine factories may go to brokerage companies to transfer the rest of the value of purchasing production supplies and pay 6 per cent of the transferred money. This represents a high financial burden, but sometimes there is no other choice to avoid the closure of medicines factories.”
Hafez is demanding that the CBE find a resolution to the problem that comes from its decision and puts such pressure on the industry. He adds that the continuation of this crisis will greatly affect all industrial sectors.
Hamdi Harb, former head of the leather tanning chamber, says production has decreased by 50 per cent as a result of the CBE decision because the factories are unable to transfer what they need in US dollars to buy production supplies, which amount to 90 per cent of what is needed for leather production operations, including chemical substances. He says the tanneries need US$250,000 a month to pay for needed imports to continue export operations. Tanneries are unable to buy supplies with half the exporting outcome transferred from abroad to the Egyptian manufacturer, which will lead to difficulties in deposits and withdrawals. This will damage the whole industry unless the government intervenes.
However Muhammad al-Sweidi, head of the Egyptian industries union, gave an assurance that there is complete coordination between the union and the CBE in regard to providing the foreign currency needed to satisfy the factories’ needs for production supplies and materials. It demands opening letters of credit in banks to draw up contracts with foreign suppliers.
In a private statement, he added that the CBE’s procedures to combat the US dollar black market would benefit the Egyptian economy and said banks were keen to provide the factories with hard currency to guarantee the continuation of the production operation, which was in line with the State’s target to increase the reliance on local products and decrease imports to strengthen local industry.
The union chairman added that the current situation was incomparably better than in the few previous years, when industry suffered greatly from foreign currency shortages and values increased rampantly on the black market. Nowadays manufactures only wait three days to obtain foreign currency from the banks, which does not constitute anything like the crisis that is claimed.
Sweidi described comments about the impossibility of each manufacture using his US dollar exporting outcome to import production supplies as unbelievable, since everyone could use their exporting outcome to buy their industrial needs. According to him, the only situation where the manufacturer might not be able to do so was if transferring it incorrectly. He said the union delivered all the complaints about the difficulties facing manufacturers in regard to importing raw materials as a result of the dollar shortage, or the impossibility of finding them, to the CBE.
