Depreciating EGP postpones foreign investments

5-1-dollars-AFP-Photo

Will the CBE’s decision to devalue the Egyptian pound by 10 piasters encourage foreign investors to pump new investments in the Egyptian market? This is a question that has been raised amid foreign criticism of the Egyptian pound as not representing its fair value.

The answer is no different than before: The US dollar’s rise to EGP 7.93 doesn’t satisfy the requirements of foreign investors; however, the change in fiscal policies of the CBE is the main demand.

Foreign investors confirmed that there are delayed investments due to a common belief that there is another anticipated decline of the pound value, but the timing is still unknown, which consequently affects the cost and revenue of investments.

Demands to decrease restrictions on depositing by US dollars in banks, and resolve hurdles of transferring foreign currency to abroad, are still being repeated in talks of investors as the most significant challenges facing investments.

Floating the currency and flexibility of fiscal policies are main demands of foreigners.

General manager and co-founder of Lebanon-based EIP for Direct Investments, Wassim Hanene, said that devaluating the Egyptian pound is not enough to grant investors a confidence in achieving targeted revenues of their investments.

Hanene said that he, as a foreign investor, is pumping funds in dollars and he aims to get revenues in dollars too.

The general manager requested the CBE to review its policies as he said a “huge tranche” of foreign investors are currently postponing their decision to pump investments in the Egyptian market.

Investor said that the CBE should float the Egyptian pound in order to reach its fair value, which accordingly will determine the strategies of investments.

On the other hand, Governor of CBE Hisham Ramez said in press statements that liberalising the price of the dollar is impossible as it is linked to a decision to devalue the Egyptian pound, expecting it to affect inflation rates.

Heneine added that the second reason consists in the restrictions applied on the maximum deposit rate which is $10,000 up to $50,000 per month.

These restrictions give the impression that the market is in a troubled phase and not suitable for pumping investments.

Ramez earlier said that lifting the restrictions on dollar deposit is unacceptable “at least not while he is in charge”.

As for Henine, he added that the third element affecting the investments is the obstacles available in transferring all the company’s profits or transferring money for foreigners outside Egypt due to the shortage in foreign currency in banks.

What concerns foreign investors the most regarding the monetary policy is the transparency in taking decisions, according to the partner in Abraj Group, Mostafa Abdel Wadoud in statements before Egypt Economic Development Conference (EEDC), which took place March 2015.

He also explained that the effects of the EGP depreciation such as the profit devaluation whilst converting to other currencies can be absorbed before pumping investments in Egypt. This can be through elaborating estimations for targeted profits based on specific indicators for exchange price developments.

For his part, head of the Egyptian Private Equity Association, Hany Tawfeek said that the EGP gradual devaluation policy followed by the CBE to manage the financial file has proven its failure since last year.

The reason behind the failure is that foreign investors are confident that the Egyptian pound is still in front of other devaluation steps.

“It is sufficient to say that the forward contracts for delivery in September 2016 estimated the dollar price by EGP 10.27, in light of the restrictions on the dollar deposits and the constraints on transferring foreign currencies abroad”, said Tawfeek.

Moreover, in Tawfeek’s opinion, the country’s monetary policy needs a comprehensive restructuring, starting with abandoning links between the EGP with the dollar, as Egypt is not an oil exporter.

Egypt should link the EGP to a basket of international currencies based on the relative value of each currency according to the volume of trade exchange with each country, Tawfeek added.