Dollar shortage wreaks havoc on retail, industry sectors in Egypt

CAIRO: A severe dollar shortage caused by the Russia-Ukraine war has forced Egypt to impose a restriction on imports, particularly of non-essential items such as clothes, cars, home appliances, car tires and luxury food items, which has wreaked havoc on the retail and industry sectors. Higher global energy, food and shipping costs resulting from Russia’s invasion of Ukraine in late February have swelled Egypt’s already huge import bill of about $80 billion a year.

Higher US interest rates have made it more expensive to service Egypt’s foreign debt of $83 billion and made the country’s bond and treasury bill issues less attractive to foreign investors. An estimated $20 billion of foreign investment has been pulled from the local debt market this year because of the uncertainty over emerging markets.

The war also halted the flow of Russian and Ukrainian visitors – who normally account for about 30 per cent of all foreign arrivals – just as the tourism industry was starting to recover from the slump caused by the coronavirus pandemic. Egypt’s foreign currency reserves, a psychologically important indicator, fell from about $40 billion at the end of 2021 to $33.14 billion in July, according to reports.

The government has responded by devaluing the currency by 14 per cent in March, banning the export of essential food items and opening negotiations with the IMF to reach a deal on further structural reforms and a possible loan from the Washington-based lender. The result overall has been a steep rise in prices, pushing the inflation rate up to nearly 14 per cent in July, the last month for which official figures are available. There is growing expectation that there will be another currency devaluation, which would push prices up further.

The spike in prices forced the government to introduce costly measures to ease the burden on the poor and middle class. Last month, the government said it would allow holders of state-issued food cards to buy more subsidized items. It also pledged to keep the price of subsidized bread, a staple for Egypt’s 103 million people, unchanged despite paying more for wheat imports that total about 12 million tons annually.

On Wednesday, the government announced a package of measures to clear the backlog of goods piled up at the country’s ports, but some industrialists and businessmen are skeptical about whether it will be enough to repair the damage caused by the import restrictions.

The import restrictions and currency devaluation have had a domino effect, with some businessmen taking advantage of the lack of new supplies to raise prices beyond the levels needed to compensate for the depreciating pound. “My supplier is charging me three times what I paid for materials before the devaluation,” said an industrialist whose factory produces sports supplements. “I have raised my prices by 15 per cent and I am not even breaking even. If I raise more, my sales will slump.”

In a move that underscored the seriousness of the problem, the government in August dimmed the lights at Cairo’s Tahrir Square and ordered shops and malls to turn down air conditioning to reduce electricity consumption and free up some of the natural gas used by power plants for export to earn more foreign currency. – Agencies

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