EGYPTIANS LOOK TO GOLD AMID RISING PRICES AND FALLING TRUST
▶ Country’s economy stung by regional crisis as inflation soars
The new year has not been a happy one for Egypt. Consumers have been hit by steep price rises while a sharp drop in traffic through the Suez Canal is affecting one of the government’s main sources of foreign exchange.
Meanwhile, billions of dollars of loan repayments are due this year.
Egyptians, who have struggled with soaring inflation and austerity measures since the country’s economic troubles began in March 2022, told The National that January has been the most difficult month so far.
Despite Egypt’s headline inflation easing to 33.6 per cent in December, down from 34.6 per cent the previous month, food prices have risen.
Some items, such as beans, doubled in price between last month and this month, while dairy products and cooking oil rose by about 30 per cent and 15 per cent respectively.
On January 1, state-owned and private telecoms companies raised internet charges by more than 30 per cent.
At the same time, steel companies raised prices by about 10 per cent, resulting in increased construction costs.
The Egyptian Transport Ministry also raised metro prices by 20 per cent at the start of the month.
The situation was made worse by the black market exchange rate for the US dollar, which sank to a record low of 64 Egyptian pounds, more than double the official exchange rate of 31 pounds.
Due to a shortage of US dollars in the country’s banks, importers, industrialists and manufacturers, all of whom rely on imported components, have to purchase any foreign currency they might need to run their businesses through the black market.
Left with few options to preserve the value of their dwindling savings, some Egyptians have tried to make use of the rapid inflation by buying goods to resell just days or weeks later at much higher prices.
“I bought this Philips iron earlier this month for around 2,900 pounds,” said Ali Osman, 45, a father of three.
“I didn’t use it and went back to return it about a week later.
“The shop owner said he would take it back for the same amount of money I had paid, even though he had the same one displayed in his window for around 1,000 pounds more.
“I didn’t think it was fair, so I decided to sell it on Facebook. I managed to sell it about two weeks after for 4,300.”
Mr Osman, a mason, has been out of work since November after the contractor he was working with shut down.
After selling the Philips iron, he bought two blenders, which he plans to sell once prices have increased enough for him to make a profit.
Others have been doing the same with branded clothing, which has soared in price.
“I received a pair of Nike trainers as a gift but then I was strapped for cash so I decided to sell them,” said public relations agenct Mahinour Abbas, 32.
“I checked the prices and the pair were selling for 12,000 Egyptian pounds.
“That was crazy to me, they’re a pair of shoes whose price is worth one month’s rent.
“I ended up selling them for 10,000. I then bought another pair of Nikes that were slightly cheaper. I’ll sell them later when prices rise.” Some Egyptians have also been
purchasing gold which has driven up the price of bullion.
The rising demand drove the price of one gram of 21-carat gold to about 3,800 Egyptian pounds ($123) on Thursday, compared to about 3,200 on December 1.
Egypt’s government has turned to the International Monetary Fund for loans to help it through the crisis, but this comes with strict conditions such as reducing public spending and a free float of the local currency.
The fund says that floating the currency will reduce fears about the stability of the Egyptian pound and encourage foreign direct investment.
However, Hassan El Sady, a professor of finance and investment at Cairo University, says it will most probably drive investors away.
“This is not my opinion, this is all recorded data,” Prof El Sady told The National.
“If you look at the history of direct foreign investment in Egypt, it usually peaks when there are strict controls on the currency by the central bank.
“This is because investors don’t want to move their money to a place where one
day the dollar is trading for 30 pounds, only to double to 60 the next day.
“That is the opposite of stability.”
The rising costs have also eroded public trust in the country’s financial institutions, Prof El Sady said.
Apart from encouraging parallel markets, this has reduced direct remittances from Egyptians working abroad – an important source of foreign currency – by about 30 per cent in the first quarter of the current financial year, which started in July.
The loss in trust has also enabled currency market profiteering, where “currency traders can pretty much name their price and they know people will pay”, he said. Prof El Sady said the government needed to act more firmly
against this since Egypt is not suffering from a dollar shortage, but rather those holding dollars are less inclined to exchange them through official channels.
“There is little faith that government programmes will generate revenue for citizens which is why various initiatives by the government to entice dollar holders to invest them locally have failed,” he said.
“That is a major failing on the government’s part.
“The IMF is not going to ensure that Egyptians make profits, in fact, it has the opposite effect usually. The government needs to come up with effective investment schemes to ensure that both local and foreign investors make adequate revenue. That is the only way to drum up dollars and get rid of the black market.”
This year would be tougher than last year for Egypt on account of the $32 billion that it has to repay to various creditors, Prof El Sady said.
“The toughest economic conditions are going to be during the first half of the year and that is what we’re seeing already,” he said. “Around $16.9 billion will be required during
the first half of 2024 and the rest by the end of the year. I expect the government will need to borrow more money to pay their debts, which, I fear, will only exacerbate the cycle.”
Compounding the problem is the drop in dollar revenue from the Suez Canal because of attacks on shipping by Yemen’s Houthi rebels that have forced vessels to avoid the Red Sea.
Revenue in the first week of January was down 41 per cent from a year ago, the waterway’s authority said.
President Abdel Fattah El Sisi, who won a third consecutive term last month, sought to once again reassure Egyptians during a speech last Wednesday to mark Police Day, a public holiday.
“Don’t think that I don’t appreciate the magnitude of suffering and economic pressures in Egypt,” Mr El Sisi said.
“I appreciate even more the tenacity of Egyptians.
“I know too well that life is tough, the prices are high and the circumstances are difficult.
“Prices are high but all of us can manage. If we endure, we will all live.”
Egypt’s government has turned to the International Monetary Fund for loans to help it through the crisis