- 9 November, 2016
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The devaluation of the Egyptian pound promotes exports
The Egyptian government has devalued its currency, the Egyptian pound, whose value has been reduced by 48% against the US dollar. The aim of this decision is to offer Egypt a way out of the current economic crisis, and the Egyptian exporters have welcomed it with optimism.
“It is a very aggressive move, but the truth is that it was necessary. It is time for our economy to grow and, although the next six months will not be easy, the result will be impressive,” says Ahmed Sarhan of the exporting company Fruttella. Egypt.
According to Sarhan, export prices fluctuate a lot at present because of the state of floating capital of the Egyptian pound. The exchange rate fluctuates sharply between 15.0 and 15.8 points against the dollar, depending on supply and demand, although the exporter believes that it will stabilize over time.
“It’s going to be a tough period for all of us,” he said. “When we agree on a price of £ 15, it will not be uncommon to get £ 14 instead.” “We’ll have some losses, but we’re willing to deal with it. Says Sarhan.
Entrepreneurs like Sarhan believe that Egypt will benefit from having a higher export rate at the expense of imports. Although many import companies will be motivated to export, most companies do not have the economic means to invest in such a big change. According to Sarhan, only 20% or 30% of current importing companies will be able to make the change.
In addition to the devaluation, Egyptian banks have increased their interest to encourage citizens to enter money for longer. Those who deposit their money for two or three years will enjoy a 20% interest rate, but the downside is that it will be more expensive to borrow, which in turn will reduce both domestic and foreign investment.
“The current policy of interest is a double-edged sheet. I do not think banks will keep this plan for long, but they need to encourage the exchange of dollars for Egyptian pounds,” Sarhan adds.
The Egyptian system of public revenue is not based on taxes, but rather on subsidies. To finance the current changes in Egypt’s financial climate, the Government has withdrawn fuel subsidies and added more to help those who have fewer resources through social security. However, Sarhan believes that, at least in the short term, people with few resources from Egypt will suffer some consequences. “It’s like a painful operation that will heal over time,” Ahmed Sarhan concludes.
Sherif El Naggary, of Fresh Fruit Company, thinks the same. “Although it will be difficult to import because of high prices, the measure will help exports.” Citrus will begin in December, and the only factor we have to take into account is what prices we will set in. The value of the Egyptian pound could change a lot Over the months and our customers in Russia and Europe pay the price they traded at the beginning of the season.We do not know what kind of change will be in May or June and if it goes down the exporters will have terrible losses, If the dollar goes up, everything will be fine. ”
Nonetheless, devaluation is a good thing for exporters. The Naggary argues that a lower exchange rate translates into cheaper prices that attract customers and investors abroad.
“The economy is reinforced with competitive prices and foreign investments, and international demand will increase, although we will always depend on the seasons.”
Although the Naggary recognizes that, from an individual perspective, the Central Bank interest rate is very attractive, it also sees some negative influence on trade.
“The loans will be more expensive, but we expect interest rates to fall as the banks get enough capital in less than six months. The IMF loan will also help our economy, and all we need is patience as we see How it all develops, “concludes The Naggary.