Monday,23 October, 2017
Current issue | Issue 1319, (10 - 16 November 2016)
Monday,23 October, 2017
Issue 1319, (10 - 16 November 2016)

Ahram Weekly

The Aftermath: Gainers and losers

Last week’s floatation of the pound and reductions in fuel subsidies are two bold steps that had been delayed for years out of fears of their repercussions. Al-Ahram Weekly sheds light on the main  gainers and losers

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Al-Ahram Weekly
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Employees with fixed incomes in Egyptian pounds:The purchasing power of the pound has declined by at least 45 per cent as a result of the floatation, which means the real value of the incomes ofemployees with fixed incomes in Egyptian pounds hasdecreased. The expected spike in inflation, due to increases in fuel prices, will also make their lives harder. Beltone Financial, a leading investment bank, now expects the inflation rate to hover around 25-30 per cent in the short term compared to 14 per cent in September.

Tourism:  Egypt will return to being a cheap tourist destination with many prices almost halved from earlier in 2016. The tourism sector shrunk by 29 per cent in fiscal year 2015/2016, and the government is setting a 15 per cent growth target for 2016/2017.

Remittances:A significant number of Egyptian expatriates were using traders outside the official channels to transfer their money back home earlier in 2016, due to the difference between the official rates and those available on the parallel market. This led to a decline of 11 per cent in the value of remittances in 2015/2016.

This situation is expected to change, with the price of dollars now being determined by supply and demand. The Central Bank of Egypt (CBE) has also lifted the commission charged on expatriate transfers in the banks.

Foreign direct investment:This is expected to increase, as the main concern that had been driving investors away was the unstable exchange rate and the scarcity of dollars, prohibiting them from repatriating their profits. The Ministry of Investment expects foreign direct investment (FDI) of $10 to $15 billion.

Fuel subsidies:Contrary to what has been said by some, the reductions in subsidies announced last week will not result in savings. With the pound losing around 60 per cent of its value and fuel prices increasing by 30 per cent on average, fuel subsidies have gone up. They are expected to be at around LE65 billion in the current fiscal year, compared to the projected LE35 billion.

Exports:The devalued pound should make Egyptian exports more competitive. Minister of Trade Tarek Kabil expects exports to increase by 10 per cent after the devaluation, but this will also mean encouraging exporters and upgrading the quality and packaging of exports. Egyptian exports came in at $18.7 billion in 2015/2016.

Imports:Now that restrictions on imports have been lifted and the costs of all imported materials will increase by 50 to 60 per cent as a result of the devaluation of the pound, the country’s imports bill will be significantly inflated. Egypt imported $56.3 billion worth of commodities in 2015/2016.

The stock exchange:The stock market saw buoyant sentiments after the floatation, gaining nine per cent in the two trading sessions following the decision on hopes it would trigger more portfolio investments. Companies with revenues in dollars are expected to gain most in the coming period.

Car prices:The value of customs duties charged on imported passenger cars will increase by around 50 per cent, reflecting the percentage of the decline in the value of the pound versus the dollar. Automobile companies are currently re-pricing their vehicles following the decision. Sales of new cars in Egypt declined in the first eight months of 2016 by 25.6 per cent, compared to the same period last year, according to data from the Automotive Marketing Information Council (AMIC).

Credit and debit cards:Many banks have adjusted restrictions on the use of credit and debit cards outside Egypt. The CBE had almost tripled the earlier limit.

Treasury bills:The CBE decided to increase its overnight lending rate by three per cent, meaning that the rates charged on all deposits, loans and certificates went up. The cost of borrowing in treasury bills rose to 19.05 per cent from 14.594 per cent for 91-day bills, while the yield on 266-day bills climbed to 20.367 per cent from 16.545 per cent, adding to the burdens on government coffers.

Suez Canal certificates:Egypt's Finance Ministry has raised the interest rates on Suez Canal investment certificates to 15.5 per cent from 12 per cent for the remaining three years of the five-year certificates. The certificates were sold in September 2014 in Egyptian pounds to finance the New Suez Canal. The government will now pay LE9 billion annually in interest rates on these certificates.

Eurobonds: Now that Egypt has taken two main actions prior to receiving the projected IMF loan, the IMF board is expected to approve the loan soon. IMF approval of the loan is also expected to lower other borrowing costs for the government. The finance minister said on Saturday evening that a Eurobond issue would be advertised on 20 November, with the issue itself launching 10 days later.

Air Ticket prices:Egyptair will review the prices of its tickets next week in the light of the decision to float the pound. British Airways increased the prices of its tickets by 15 per cent following the floatation last Thursday.

Transport costs:The increases in fuel prices have been reflected in the charges made by private microbuses across the country, with increases of LE0.25 to LE1 according to the length of the trip. White taxi-drivers have also called for increases in their tariffs to cover the hikes in the prices of petrol. The operators of the ridesharing applications Careem and Uber said they are also considering upping their fares.

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