Sunday,16 December, 2018
Current issue | Issue 1374, (21 December 2017 - 3 January 2018)
Sunday,16 December, 2018
Issue 1374, (21 December 2017 - 3 January 2018)

Ahram Weekly

Thriving on a weaker pound

Exporters and importers were among the most affected by the decision to float the Egyptian pound. Beesan Kassab interviews two businessmen who benefited or suffered from the floatation  

Arafa for Investment in Textiles Manufacturing, a holding company headed by Alaa Arafa, is happy with what its CEO called the fruits of the floatation in 2017. Its net profit in the first nine months of the current fiscal year reached $4 million, compared to U$3 million during the same period of the previous year, according to the company’s stock report.

“I am confident in our ability to regain US and Turkish markets by the beginning of the new year,” Arafa told Al-Ahram Weekly. He explained that his group had lost its competitive edge before the decision to float the pound in November 2016, when its value had increased making exports more expensive in foreign markets. It was difficult, he said, at the time to compete in US and Turkish markets.

The company is a leading global textiles and apparel manufacturer and retailer based in Egypt. It is also a signatory to an agreement between Egypt, the US and Israel in 2004 that allows competitive leverage for Egyptian products in US markets without imposing customs fees, but only if the products’ components are at least 35 per cent Egyptian and 10.5 per cent Israeli.

“It is not as easy to make sure this happens as it might appear,” Arafa said. “Other countries, like Mexico, have similar agreements with the US. Competitively-priced exports from these countries have swept Egyptian products out of the US market because of the high value of the pound before the floatation and the increasing inflation which has resulted in increases in the prices of Egyptian products abroad.”

During these “difficult” times, the Arafa Group lost market-share, resulting in layoffs at home to ease the financial burden, he said. “However, this is all history now,” he added, praising the floatation decision, which had led to an expansion in his exports to the UK, Italy and Spain.

However, the floatation, a setback for a country suffering from poor balance of trade figures, led to an increase in inflation, which peaked in July at 35 per cent. Arafa said he had had to increase payrolls by 18 to 20 per cent. The inflation had also led to “reductions in purchasing power in the local market, though not to a decrease in profits because the prices of our products increased,” he stated.

“The number of pieces we sell decreased, but we have kept the same market-share. I think sales decreased by 20 per cent over the 18 months from the day of the floatation.”

But for a group like Arafa, which exports 94 per cent of its products, the local market has a limited effect on its profits.

When the pound was floated, the Central Bank of Egypt (CBE) increased interest rates on deposits to cushion the impact of rising inflation. The CBE decision was criticised in business circles for its effects on lending. Not that this matters too much to Arafa, “because we take out loans in hard currency.”

“But I can still criticise a decision even if it doesn’t hurt me directly. No one can be truly happy in a sad country,” he said.

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