Further dollar drop THE DOLLAR continued its free fall this week to reach LE5.46, compared to LE5.65 just six weeks ago. A selling spree following the US Federal Reserve's decision on 31 October to reduce interest rates by a further 25 points to 4.25 per cent weighed down on the dollar value. This, despite some gain the previous week after Central Bank of Egypt's (CBE) intervention by buying $800 million to support local exports and limit inflation. Furthermore, CBE's decision on 1 October to keep its overnight deposit and lending rates at 8.75 per cent and 10.75 per cent, respectively, for the 11th month in a row has added more pressure on the dollar on the local market. The decision came despite concerns about inflation, which rose to 8.8 per cent year-on-year (y-o-y) in September from 8.45 per cent in August. This is the second increase in two months, driven mainly by a rise in domestic food prices. Foodstuffs rose to 13.3 per cent y-o-y in September, from 12.8 per cent in August. "The CBE, aiming to reduce imported inflation, has allowed the Egyptian pound to appreciate against the USD more quickly since July," noted a release by EFG-Hermes commenting on the decline. The continuing rise in prices, however, suggests that domestic growth and higher wages have also been adding to inflation, added the release. Rapidly rising wages in the textiles, construction and other sectors have been on the rise for more than two years. The green-backed currency lost ground during the last quarter globally due to a slowdown in the US economy, to reach its lowest-ever level against major currencies. However, the spiral slide on the local market in the last two weeks was ignited by press statements by Finance Minister Youssef Boutros Ghali in which he expected the dollar to decline to reach LE5.3 by the end of the year. China at the gate A VISIT by China's Vice Minister of Commerce Liao Xiaoqi boosted economic relations with Egypt, writes Mona El-Fiqi. Liao signed six agreements during his four-day visit to Cairo last week, including the creation of a Chinese industrial zone and several joint projects. Minister of Trade and Industry Rachid Mohamed Rachid declared on 1 November the establishment of the first Chinese industrial zone ever to be built outside China. Rachid also announced a new credit line, extended by the Chinese government to Egyptian companies, to finance capital goods imported from China. The new Chinese-Egyptian Zone for Economic Cooperation and Trade will cover an area of five square kilometres in the Suez area, and will be developed, managed and marketed by the Chinese company TEDA -- the largest industrial zones developer in the world. Total infrastructure will cost $100 million and will be constructed in two phases. The zone is expected to attract some $2.5 billion in Chinese investments by companies in the fields of textiles, ready-made garments, gas and petroleum pipes, cars and car components, as well as electronic equipment. Rachid described China's decision to build the industrial zone as "a testament to the considerable advantages that Egypt today offers as a manufacturing destination". He predicted that the complex "will serve as a hub in the region for Chinese manufacturers looking to move closer to markets throughout the Middle East and Africa". Chinese investors will be able to take advantage of "Egypt's competitively priced manufacturing environment and our unique basket of preferential trade agreements with the Middle East, Africa and Europe," noted the minister. Meanwhile, Beijing decided to extend a $200 million credit line to Egyptian companies, with a grace period of up to seven years and an interest rate that does not exceed two per cent. This credit will go towards buying production lines and technology transfer from China, and is expected to increase to $1 billion. Moreover, the two countries will cooperate in building the first international conference and exhibition city outside Cairo. As a first step in this project, a feasibility study will be conducted with Chinese funding. Minister of International Cooperation Faiza Abul-Naga signed with Liao an agreement to provide Egypt with a $3.7 million grant to fund developing the education sector. Another three agreements will provide Egypt with Chinese grants for development projects in various sectors and governorates. Since 1993, total Chinese grants to Egypt have been estimated at $51.3 million. They funded the Mubarak Scientific Research and Technology City, a programme to develop the education system and the construction of the Cairo International Conference Centre. Easy loans from China reached $230 million, and were directed to small- and medium-sized enterprises through the Social Fund for Development and a factory in the southern city of Minya.
