Egypt’s import squeeze hobbles economy as dollars run short

  • New rules slowed imports amid currency pressures
  • The bottleneck has contributed to sharp price increases
  • Bankers say dollars are tight in the interbank market

CAIRO, Sept 27 (Reuters) – East Cairo’s Christeen Aiad had hoped to buy a small automatic car this year, but regulations preventing importers from trading tight dollars put a stop to that and she is having to deal with hers instead moving the bike.

The war in Ukraine has deepened Egypt’s economic problems. It skyrocketed the import-dependent nation’s bill for wheat and oil, and with it its need for dollars, and crushed tourism from two of its largest markets – Ukraine and Russia, a major source of hard currency.

A loss of confidence in the weakening Egyptian pound and a divestment of local and foreign investors from short-dated government bonds have helped the dollar tighten. Continue reading

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Unfortunately for those planning purchases like Aiad, new import rules introduced earlier this year to stem shrinking foreign exchange reserves and prop up the pound led to commodity shortages and pushed inflation to near four-year highs.

“Even used cars have become prohibitively expensive,” said Aiad, 38, after the price of the car she wanted rose 75% since she started searching last year, mirroring price increases for some other imported goods. “I lost hope and decided to live without a car.”

The auto sector was among the hardest hit, but the import crisis has impacted everything from electrical components to textiles and spare parts, dealers said.

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This week, the central bank, which had its governor abruptly replaced in August, eased restrictions slightly by allowing companies to use foreign currency deposits or remittances to secure letters of credit to pay for imports, according to new rules detailing those in local was widely reported in the media. The central bank did not respond to a request for comment.

But the import bottleneck is likely to drag on.

Egypt’s annual imports of finished vehicles, previously worth about $8 billion, are expected to fall by more than half this year, a senior industry leader said. Prices of popular used cars have doubled and some dealers are hoarding them in anticipation of further price increases, according to two used car dealers in Cairo.

“There is a buying spree that comes from people’s fear of what might happen later,” said a third used car dealer in the Egyptian capital, Hany Ahmed. “Some are buying cars as a store of value given the devaluation of the local currency.”

DOLLARS DISAPPEAR

According to the latest quarterly figures from the State Bureau of Statistics, imports of consumer durables fell by 57% from April to June compared to the same quarter last year.

Into the summer, some apparel retailers, unable to secure new seasonal stock, left winter collections on the shelves.

Bankers say dollars have largely disappeared from the interbank market, and traders say securing hard currency through a letter of credit in order to import goods has become a long and frustrating task for most people.

Net external assets in the banking system fell from positive 248 billion in July 2021 to the negative 369 billion Egyptian pounds (US$19 billion) in July 2021 as the central bank pulled them lower to support the currency’s value against the dollar. according to the central bank.

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Foreign exchange reserves slipped to $33 billion in July from $41 billion in January, despite a cash inflow from Egypt’s Gulf allies and new import regulations.

The US Federal Reserve’s interest rate hikes, which began in March, have complicated Egypt’s efforts to attract domestic and foreign credit to plug current account and budget deficits.

Egypt has been negotiating a new loan with the International Monetary Fund to prop up its economy since March as its debt mounts. Continue reading

Meanwhile, the Egyptian pound has lost more than 22% against the dollar since March.

BACKLOG AT PORTS

Exemptions were granted for essential commodities and manufactured goods before the central bank eased recent import rules, but agents still struggled to pay the letters of credit needed to clear the cargo, and diplomats say some exporters to Egypt have grown wary are.

A spokesman for the Department of Commerce declined to comment on the reported difficulties.

“The goods are piling up at customs,” said Ahmed Shiha of the Cairo Chamber of Commerce’s importers department. “Some cargoes could be stuck (in ports) for more than three or four months.”

The construction sector, which has helped keep Egypt in economic growth during the COVID-19 pandemic, has been hit by the delays, developers said.

“I can’t say there are projects that have been shelved because the real estate sector uses a lot of locally produced materials. But there may be projects whose opening has been delayed, for example, by two months to allow people to bring in their imports,” said Mohamed Hany el-Assal, CEO of Misr Italia Properties.

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Even some goods that many would consider essential were affected. A pharmacy owner in Cairo said Egyptian drug suppliers are having trouble importing foreign-made medicines, while local manufacturers have curbed production due to difficulties importing active ingredients.

Officials say reserves of strategic commodities, including wheat, have been maintained.

“There is certainly a delay (for food) in the ports,” said Ashraf el-Gazayerly, a senior member of the Food Chamber at the Federation of Egyptian Industries. “Stocks are declining, but there is no shortage.”

($1 = 19.4600 Egyptian pounds)

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Additional reporting by Mariam Rizk, Patrick Werr, Aidan Lewis and Nafisa Eltahir; writing by Aidan Lewis; Edited by Elaine Hardcastle

Our standards: The Thomson Reuters Trust Principles.

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