Egypt loses currency battle to ‘dollar mafia’
Cairo- Egypt is losing the race for the dollars in its citizens’ hands to exchanges and ubiquitous foreign currency mafias, creating a situation that might soon drain all the greenbacks from government coffers, economists say.
This could mean the country would be unable to honour obligations to lenders and fail to secure food imports.
“A systematic war is being waged against the economy by a bunch of currency dealers who have created a parallel foreign exchange market,” independent monetary policies expert Amr Hassanein said. “Things are getting out of control for the Central Bank.”
US dollars, the main import currency, are being sold, not at Egypt’s banks or foreign exchange offices but at supermarkets, coffee shops and public squares. The government calls this a “conspiracy” aimed at bringing the Egyptian economy to its knees. However, economists refer to deteriorating business conditions, a weakening national currency and a failure of policy planners to set a realistic value of the dollar to the Egyptian pound at banks.
The black market rate for one US dollar, which has been rising since the beginning of 2015, is 10.50- 11.50 Egyptian pounds. The official exchange rate is 8.88 pounds to a dollar. The difference in the rates is why the black market is winning the battle for the dollars in ordinary citizens’ pockets.
“Foreign currency mafias”, as the government calls them, collect millions of dollars from Egyptians on the streets, at coffee shops and at supermarkets, buying them at the highest rate and depriving the national economy of much-needed foreign currency.
Saleh Mohamed, a cigarette seller turned dollar dealer, has been making huge profits since he turned to the dollar trade.
Mohamed, in his mid-40s, spends time on Alfy Street, a pedestrian-only road in the heart of Cairo, waiting for potential dollar sellers. Behind his zest for buying the US currency is pressure from importers who need the dollars to buy goods for the local market, including cooking oil, clothes, medicine and engineering equipment. Mohamed makes money selling the dollars he buys on the street.
“Importers cannot find the dollars at the banks or exchanges,” Mohamed said. “Citizens who have dollars don’t want to sell them at the low bank rate either.”
He is one of hundreds of people who have turned to the lucrative foreign currency trade in recent months.
In a related development, dollar-thirsty airlines have been telling passengers that they have to buy airline tickets using US dollars, not Egyptian pounds. The airlines are also appealing to the government to allow them to buy fuel at the local market, using Egyptian pounds, not US dollars.
Some companies are closing down because they do not have enough dollars to secure imports. Pharmaceutical firms have stopped production of some medicines because they did not have enough dollars to buy raw materials on international markets.
The worst is yet to come, economists warn.
Egypt’s foreign currency reserves have fallen to $16 billion, almost half of what they were before the 2011 uprising. The bulk of the reserves is not owned by Egypt but came in the form of Central Bank deposits from Gulf countries concerned about Egypt’s economic downfall.
“Setting a realistic value to the pound is one of the actions needed,” said Sherine al-Shawarbi, an economics professor from Cairo University. “Our factories need to produce more for export, the tourism sector must come back on track and Suez Canal revenues must return to their normal levels.”
Some countries have been warning against travel to Egypt since a Russian airliner was bombed over Sinai in November 2015. Suez Canal revenues have declined due to slower international trade.
This means, economists say, that Egypt has to keep depending on Arab aid. It also means that people such as Mohamed, the dollar trader, will continue to make huge profits as the Egyptian economy sputters.