Friday,15 December, 2017
Current issue | Issue 1129, 3 - 9 January 2013
Friday,15 December, 2017
Issue 1129, 3 - 9 January 2013

Ahram Weekly

Dollar doldrums

The depreciation of the Egyptian pound against the dollar has added to the burdens on local manufacturers, Mona El-Fiqi reports

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eco11
Al-Ahram Weekly

Egyptian producers are complaining of a combination of factors that have pushed them to increase the prices of their products. Energy and water prices have increased, a new sales tax rate is soon to be applied, and to top it all the value of the pound has been steadily dropping on the international markets, making day-to-day operations an ordeal.
The Egyptian pound stood at LE6.39 against the dollar on Tuesday, with local producers saying that the depreciation of the value of the pound was harming firms, particularly those importing raw materials.
Mohamed Hanafi, general manager of the Chamber of Metallurgical Industries at the Egyptian Federation of Industries (EFI), said that “the value of the pound has dropped, and yet we cannot even get our hands on them.”
Steel and copper producers who have to conclude contracts every week to import raw materials such as billet and scrap complained that they were not able to finish deals this week since the banks had refused to issue them with hard currency letters of credit.
Hanafi added that producers now had few choices. “Unless they get dollars, even at high rates, they will have to stop production,” he told Al-Ahram Weekly.
Although dollar prices have only gone up by around one to two per cent, this represents an increase of LE40 to LE50 per tonne of steel, according to Hanafi, a tonne currently being sold for LE400. “The five per cent sales tax that is expected to be applied next month will also add LE200 to the cost price of a tonne of steel,” he added.
Adel Beshai, a professor of economics at the American University in Cairo, agreed that the financial burdens on producers had increased over the past two years because the government had been too late in taking the right decisions.
It would have been better if it had started to increase water and energy prices gradually years ago, he said.  
Beshai said that the depreciation of the pound would harm producers whose goods were sold on the local market since the prices of imported components would rise. However, Beshai said that “if the pound depreciates by 10 per cent, the impact on a product’s final price could be only two per cent.”
He said that if producers increased prices at higher rates, the government should intervene to prevent unjustified hikes in prices. “I believe some sectors are making very high profit margins of between 40 to 60 per cent. This is the case in the cement industry, which can afford to bear the increases in prices,” Beshai said.
Beshai said that the depreciation in the value of the pound would help exporters since their products would be more competitive on international markets.
However, the pound’s depreciation is expected to harm the government’s imports bill, particularly for basic food stuffs. Sanaa Khalifa, an economist at the Agricultural Research Centre, said that since Egypt was a net food importer, devaluation of its currency would raise the country’s food imports bill.
Khalifa expected the dollar exchange rate to reach LE7 during the first quarter of 2013, causing a hike in food-import costs in the government budget. Egypt imports 90 per cent of its cooking oil and 50 per cent of its wheat consumption, in addition to other commodities such as sugar, corn and tea.
Khalifa blamed the government for lacking a clear economic vision of the country during the transitional period. Social justice should be the priority, she said.
However, she said that firms were facing great challenges and that when they started to make losses the temptation could be to reduce costs by firing workers. Hundreds of firms had already stopped production due to losses, and if this continued unemployment would inevitably increase and with it the rate of poverty.

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