Coming to terms

Around 20 foreign exchange bureaus are up in arms against the Central Bank of Egypt, Pierre Loza finds out why

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Foreign exchange bureaus (forex bureaus) have had a year since the amendment of Law 93 of 2005, to increase their paid-in capital from LE1 million to LE5 million. However, not all of them have been able to meet a 21 June deadline by the Central Bank of Egypt (CBE) to comply. In fact, around 20 companies were forced to shut down until further notice.

The legal saga started in 2001, when forex bureaus were mandated to increase paid-in capital to LE10 million, but since the law was amended several times. The paid-in capital was reduced to LE5 million and a June, 2006 deadline was set for bureaus to conform to the new standard.

Among the firms which closed their doors to business is Hassan Dardeer's Maadi forex bureau. Dardeer believes that the law was articulated at a time when black market trading was rampant and that it should not apply to the present. "What difference does it make whether the paid-in capital of a forex bureau is LE1 million or LE5 million? In my business for example, I do not have enough demand to circulate LE1 million, let alone five," complained Dardeer.

His company is among 20 firms which took the CBE to the Administrative Court last Saturday to contest the decision to close them down; the court ruling was postponed until next week. In the meantime, the issue is also being looked at in the Higher Constitutional Court due to speculation that Law 93 is unconstitutional.

In the hope of reopening his doors for business, Dardeer anxiously awaits the ruling of the Administrative court and wants the Central Bank's decision to be revoked. He compares his current predicament to that of travel companies when they were coerced into increasing their capital. "why should someone who has been operating for years under certain conditions be suddenly subjected to new ones? The law should be applied to new businesses," Dardeer stressed.

Bureaus which were shut down for not undertaking the preliminary steps of compliance were given a one-year grace period, before their licences are permanently revoked. Firms which began the process of compliance were given a one-month grace period and allowed to operate. Secretary-General of the forex bureau division of the Federation of Chambers of Commerce and owner of the Israa forex bureau, Ali El-Hariri, has complied with the law's requirements by merging with two other firms on 7 June. "At the end of the day, the merger has helped my company develop more than one branch, giving me a greater degree of prominence," El-Hariri said. Because he has new shareholders now, El-Hariri does not manage his business alone anymore. "We have to understand that it is about team effort now. Many of these bureaus do not want to conform because ownership is based on family ties, so they are reluctant to bring in share holders," he added.

Under Egyptian law, forex bureaus must be owned by Egyptian citizens and they are permitted to increase their capital by incorporating more shareholders -- an option more than 70 per cent of bureaus have already taken. "The Central Bank is trying to increase the number of bureaus so that people do not turn to the black market," explained Hariri. Although the new regulations have coerced firms into increasing the paid-in capital, they also permit each company to open five branches, in effect increasing their business activity.

Hussein Halim complied with the capital increase five months ago and suggests that CBE's demands are quite reasonable. "If you think of the inflationary pressures from 1990 to 2006, you will discover that an LE1 million back then is equal to about LE5 million today," noted Halim. According to him, a lot of the initial reluctance to comply was because firms did not understand the law. "Through our work in the association of forex bureaus, we were able to convince about 65 firms to merge," said Halim. "We also encouraged the 20 or so that were left to form one large entity but they refused."

Mohamed Amin, the lawyer hired by the 25 bureaus to fight the Central Banks decision, stated that his clients have a very valid case. "How can they implement the decision to halt operations, if the case has been referred to the higher constitutional court?" questioned Amin. "Our aim now is to revoke the Central Bank's decision, so that these firms can start operating again. But the constitutional court case can take its time," he added. Amin is building his defence on the fact that the law's third article is an infringement on personal property, in contradiction to the legislative cornerstone that commits newcomers to new market conditions.