Pound holds its ground The Egyptian pound has retained its value against the dollar, despite the political unrest, writes Ahmed Kotb
The Egyptian pound has managed to sustain its value against the US dollar and other currencies despite the current political unrest and violence that is sweeping Egypt's streets. On Monday, the dollar traded for LE7.01, sterling for LE11.2, the euro for LE9.6 and the Saudi riyal for LE1.9 in banking transactions, with almost no changes to last week. The unrest did not help the black market, and the price of the dollar at exchange companies hovered around LE7.05, thanks to weak demand and the abundance of supply. This was despite the closure of many exchange bureaux since last Thursday due to fears of damage and the shortening of all banks' working hours from 9 in the morning to 12. On Monday, the Central Bank of Egypt announced that starting from Tuesday the banks would resume normal working hours from 8:30am to 2pm. Belal Khalil, deputy head of the Exchange Division at the Federation of Egyptian Chambers of Commerce, said that the lack of demand for the dollar was a reflection of people's trust that the crisis would not last for long and that the value of the pound would not depreciate over the coming weeks. Khalil pointed out that some foreign exchange companies in areas close to the clashes had been full of customers because only a few companies had decided to open up amid the risky circumstances. “In general, demand remains weak,” he said. The current stability in the value of the pound against the dollar despite the unrest is also a result of a recent increase in Egypt's foreign reserves, which have been supported by financial aid from Saudi Arabia and the United Arab Emirates, raising the reserves from $14.9 billion in June to $18.8 billion in July 2013, according to the Central Bank. However, one top foreign currency earner, tourism, is likely to suffer from a significant drop in revenues due to the lack of tourists over the coming weeks and months, which will negatively affect Egypt's reserves and consequently the value of the pound against other currencies. Tourism represents about 10 per cent of Egypt's GDP, with revenues in 2012 estimated at $9 billion. According to Khalil, the lack of the normal flow of income from tourism will affect the value of the pound in the long term, but reserves are expected to be healthy in the short term because Egypt has received only $5 billion of the total of $12 billion in aid packages promised by Saudi Arabia, the UAE and Kuwait. “The remaining $7 billion will help keep the foreign reserves at safe levels,” Khalil said. “The absence of dollarisation and Egyptians' faith in the continuity of the local currency's gaining in value is the key to stability on the exchange markets.”
Trade stagnates The retail market has been negatively affected by the political turmoil, reports Nesma Nowar
Egypt's markets are feeling the brunt of the current political turmoil, with shops in central Cairo being nearly deserted and others located in potential risk areas such as Nasr City and Giza closing their doors as a result of the ongoing violence. Shops and markets in areas distant from the clashes have fared better, but in general the retail market is witnessing weak demand as shops have had to reduce their working hours due to the month-long curfew imposed last week from 7pm to 6am in 14 governorates. Street vendors who have occupied the streets of downtown Cairo over the past two years have also been afraid to show up, fearing violence. “The market has been stagnant since the 30 June Revolution,” Mohamed Sultan, the owner of a shop in downtown Cairo, said. “But things are much worse now, and it would not matter if I opened my shop or shut it. No one is buying anyway.” People were afraid to go out because of the recurring clashes, he said, and this had had a predictable effect on business. Despite the stagnant demand, consumers have been complaining of a hike in prices and a shortage of some commodities like potatoes, tomatoes and onions. Ahmed Yehia, head of the food division at the Cairo Chamber of Commerce, said that there had been no increases in the prices of commodities in general. “Price increases are special cases that might have been seen in some areas that have witnessed increased demand where there was not enough supply,” Yehia told Al-Ahram Weekly. He added that consumer purchasing power had decreased as a result of the curfew and the shorter shopping hours, saying that purchasing power in areas close to the clashes had been weaker than in more distant ones. In a bid to maintain production and supply the market with merchandise, Mounir Fakhri Abdel-Nour, the minister of trade and industry, said that the cabinet would delegate to the Egyptian Federation of Chambers of Commerce (EFCC), the Federation of Egyptian Industries, and the chambers of commerce in the governorates requests for permission by trucks shipping goods and buses carrying workers during the curfew. Ahmed Al-Wakil, the head of the EFCC, said that companies would have to submit their requests to the chamber of commerce of the governorate in which they were registered or to the Federation of Egyptian Industries, mentioning the company's name, the number and type of the vehicle, and the driver's name and ID number. The curfew has thus far prevented workers from reaching factories especially during night shifts, negatively impacting production and export commitments.
Index down over violence Despite recent cash infusions from the Gulf, Egypt's stock market has been affected by the recent violence, writes Hayat Yehia
The EGX 30, Egypt's benchmark market index, shed only 1.7 per cent of its value on 14 August, the day on which the sit-ins outside the Rabaa Al-Adaweya Mosque and in Nahda Square in Cairo were dispersed by the security forces. Traders dealing at the stock exchange seemed largely unperturbed by news of the violence. “There were less bloody days during the 25 January Revolution that pushed the market to near collapse, causing losses of 10 per cent or so and leading to closures that lasted for nearly 40 days,” recalls Hamdi Madani, a financial analyst at the Misr brokerage firm. But if the stock market was not upset by what happened at the sit-ins, it has been spooked by what has happened since. Once the Islamists had pledged revenge and the government had slammed a curfew into place, the market seemed to have decided that enough was enough. The curfew caused the Central Bank of Egypt (CBE) to cut working hours for the commercial banks, and the stock market immediately mirrored the move. On Saturday night, although the stock market chief told dealers that business would continue as usual he nevertheless cut working hours to three hours a day, a move that impacted on what happened next. “The reduction in working hours, coupled with the violence, led to fears that the market would be closed. This led to losses during the Sunday session,” an analyst speaking on condition of anonymity said. The main index lost about four per cent during the Sunday session, with foreigners selling nearly LE80 million of stocks to Arab and Egyptian buyers. During Monday's session, the main index lost one per cent, and the stock market decided that working hours would return to normal starting from Tuesday 20 August. “The market, which rose on news of Morsi's ouster, reacted calmly to the bloody confrontations at the Republican Guard Club and the Sadat Memorial. But the aftermath of the dispersal of the sit-ins was something else, and its full impact on the market is far from clear,” said Ibrahim Mansour, chief researcher at the HI brokerage firm. The EGX 30 gained 12 per cent in July, the same month that former president Mohamed Morsi was removed from power. Trading volumes also rose by 11 per cent to LE357 billion, despite the fact that the month saw the killing of 55 pro-Morsi protesters near the Republican Guard Club and of dozens of others at the Sadat Memorial in Nasr City. “The money that the Gulf countries have given to Egypt has helped shore up the market and keep it from collapsing, despite Western criticisms of the use of violence by the police and the army,” Madani said. A short speech by King Abdallah of Saudi Arabia on Saturday, in which he declared his support for Egypt's government in its war on terror, was what kept the main index from collapsing on Sunday, Madani added. Analysts had expected the index to fall by over five per cent in the first few minutes of Sunday's session, but the drop in the entire session was only about four per cent. Saudi Arabia, the UAE, and Kuwait have offered Egypt packages of $12 billion in aid, including $3 billion in the form of a grant. Some of this money will be used to shore up the country's foreign currency reserves, while some will be used to finance oil imports. The Jordanian king also visited Egypt following Morsi's ouster, and Bahrain declared its support for the new government. When Defence Minister Abdel-Fattah Al-Sisi, who removed Morsi from office, spoke to army and police officers on Sunday he thanked the Arab countries that had stood by Egypt. It was not difficult to guess how he felt about the US and the EU, both of which have criticised the Egyptian government for its use of violence.
Foreign companies suspend operations Several international companies have discontinued operations in Egypt due to the current turbulence
Seven foreign companies have thus far suspended their operations in Egypt in response to the current political turbulence, with General Motors shutting its offices on 15 August, one day after the sit-ins held by supporters of ousted former president Mohamed Morsi were dispersed by the security forces, reports Hayat Yehia. Since then, a month-long 7pm to 6am curfew seems to have convinced other foreign businesses to do the same thing, including the German chemicals company BASF, the Swedish home appliances company Electrolux, the oil company Shell, the Japanese automobile companies Suzuki and Toyota, and the Turkish food products company Yildiz. Most of these companies come from nations that have criticised Egyptian officials and have disapproved of the use of what they see as disproportionate force against the adversaries of the new regime. US, Turkish, and German officials have been at the forefront of international criticisms of Egypt's current government. Wael Zeyada, chief of research at EGF-Hermes, said that the main reason for the suspension of the operations was safety, not politics, however. The companies had all cited the security deterioration as the main factor in their decision, he said. One BASF official told Reuters that “the safety of our employees is of primary importance,” and Toyota, Suzuki, and General Motors all made statements to the same effect. Hekmat Taneryurdi, chief of the Turkish Textiles and Garments Exporters Federation in Istanbul, told journalists that Turkish textiles companies operating in Egypt might also have to discontinue production if the demand for their products continued to drop. In a positive sign General Motors announced on Sunday that its offices are back to work starting from Monday 19 August while following closely the situation. Zeyada said that cost and profitability would determine the future of the companies in Egypt. If they discovered that costs were rising in a way that ate into profits or led to losses, they might not resume operations in the near future, he said. A shut-down of the operations of these companies would affect the lives of thousands of Egyptians. General Motors has an Egyptian staff of 1,500. Electrolux employs 7,000, and Yildiz has 1,000 workers. Since the 25 January Revolution, unemployment has been on the rise in Egypt, reaching 13 per cent, according to July 2013 figures. Zeyada said that for now the closures were temporary measures, but they could later lead to downsizing and wage cuts. “Companies in such situations tend to lay off some workers and reduce the salaries of the rest,” he said. For Egypt to pull itself out of its current economic doldrums, it will need investment amounting to some 25 per cent of GDP. Since the government is already running a budget deficit of over LE200 billion, this investment will have to come from abroad. Zeyada said that Egypt needed between $10 billion to $15 billion a year in order to right itself. Annual foreign direct investment in Egypt has dropped from $13 billion in 2007 to $1 billion at present. Experts have been predicting a two per cent rise in GDP growth this year. But after the recent shutdown of operations by major foreign companies, Zeyada said that the GDP growth rate may be even less than this figure.
Tourism falls back Egypt's tourism industry has been hit hard by the ongoing political uncertainty
Egypt's tourism industry has taken several steps backwards as various countries have warned against travel to Egypt following the escalating violence since last week's events. Ahmed Kotb reports. For the first time, the German Foreign Ministry issued a travel warning to its citizens against travel to Egypt, including to the popular and security enhanced Red Sea resorts of Sharm El-Sheikh and Hurghada, saying that the move was due to the current situation in Egypt and the unpredictability of developments. The ministry said that German tourists currently at the Red Sea resorts should stay until the end of their holidays, as the situation there was calm. In response to the German government warning, Europe's largest tour operator, TUI Germany, along with Thomas Cook Germany, cancelled all trips to Egypt until mid-September. The British foreign office also advised UK nationals against all but essential travel to Egypt, with the exception of the Red Sea resorts of Sharm El-Sheikh, Taba, Nuweiba and Dahab, which it described as having enhanced security measures. The UK government told the estimated 40,000 Britons currently in Egypt to stay in their hotels if they were not at the Red Sea resorts. The Russian government issued similar warnings, the Association of Russian Tour Operators (ARTO) announcing the cancellation of travel to Egypt after the Russian Ministry of Tourism had warned of increased violence in the country. ARTO said that some 50,000 Russians had already booked tours to Egypt for the end of August and September, and that there were roughly 50,000 Russians on holiday in Egypt at the present time. The US warned American citizens against travelling to Egypt and urged its nationals who were currently in the country to leave. France, Switzerland, Sweden and Belgium gave similar warnings. Meanwhile, the governor of South Sinai was quoted by media outlets on Sunday as saying that occupancy rates stood at an average of 50 per cent in the region, “which is good in the circumstances”. Sharm El-Sheikh hotels have an average occupancy rate of 75 per cent, backed by the calm of the resort and the high levels of security. “The situation is stable in the governorate's resorts,” the governor said. Although there is no available data on occupancy rates in Cairo, Alexandria, Luxor and Aswan, Nagui Erian, deputy head of the Chamber of Hotel Facilities, said that the number of occupied hotel rooms in these governorates stood at an average of five per cent. The repercussions of the warnings against travel to Egypt, Erian added, would likely make the current occupancy rates, even in the Red Sea resorts, drop by 50 per cent over the next few weeks. Before the 25 January Revolution, Egypt attracted a total of 14.7 million tourists in 2010, with 2.8 million from Russia, 1.5 million from Britain, and 1.3 million from Germany.
Halting aid? EU countries have announced that they are reconsidering the economic aid they give to Egypt
As the world watches events in Egypt, some countries have criticised the actions of the country's interim government, threatening to cut economic aid to Egypt as a result, writes Nesma Nowar. On Monday, ambassadors from the European Union's 28 member states discussed measures that the EU might take in response to the events in Egypt. Bernardino Leon, a senior EU diplomat, declined to elaborate what steps the EU was considering, but insisted that there had been “practical unanimity” among the ambassadors and “no options were ruled out.” Following the dispersal of the two pro-Morsi sit-ins in Cairo and Giza by the Egyptian security forces last week, Denmark announced that it was suspending aid that goes through Egyptian government institutions, citing the “bloody events and the very regrettable turn the development of democracy has taken.” The country also said it would cut off its $5.3 million annual employment aid to Egypt. “What happened [on Wednesday] was unacceptable, and we are afraid developments might continue in the wrong direction,” Danish Minister for Development Cooperation Christian Friis Bach told The Wall Street Journal. Bach also told the Danish newspaper Berlingske his country would end its contributions to EU funding for Egypt. Bach and other officials called on the EU to immediately re-examine its aid policy to Cairo, with some calling for the EU countries to suspend all Egyptian aid. Germany has halted 25 million euros in funds for environmental and climate projects in Egypt, while the Netherlands has stopped cooperating with the Egyptian government following last Wednesday's events. The Dutch Foreign Minister Frans Timmermans said last week that the small Dutch aid programme for Egypt was being put on hold and that major cash streams from the EU and International Monetary Fund (IMF) had all but dried up because the country no longer met IMF conditions. US President Barack Obama condemned what he described as the violent crackdown by Egypt's interim government and announced the cancellation of this year's “Bright Star” joint military exercise in Egypt. However, he did not mention US military aid to Egypt, worth some $1.3 billion, in his statement on Egypt last week, leaving it intact. While the EU does not give military aid to Egypt, Europe is a major source of aid, loans, business and tourists to the country. The EU is Egypt's biggest trading partner, and trade volumes between Egypt and the EU reached almost 24 billion euros compared to $8.2 billion with the US in 2011. Moreover, the EU and its member states last year pledged a combined five billion euros in loans and aid for Egypt. This sum could be abruptly halted in the wake of the recent developments in the country. Ismail Hassan, former governor of the Central Bank of Egypt (CBE), said that Egypt could have faced any cut in economic aid had it worked harder on increasing local production. He said that Egyptians should change their consumption habits and buy local products, while the state should cut back on importing unnecessary goods for a certain period. “If this happens, any cut in aid will have a minimum effect on the economy,” Hassan said. At a press conference on Sunday, Egyptian Foreign Minister Nabil Fahmi rejected a warning by the EU that it would urgently review its aid to the country. He said that while Egypt was grateful for aid and assistance from abroad, any threat to halt such aid was unacceptable. Fahmi described the present crisis as Egypt's internal affair and criticised the silence by foreigners on attacks he blamed on the Muslim Brotherhood.
