* Central bank rationing dollar supplies
* So some companies forced to buy them in black market
* Costs of international business rise sharply
* Executives' visibility of future shrinks
* Some exporters benefit from weak pound
By Sylvia Westall
CAIRO, March 27 After two years of political
upheaval and weakness in the economy, companies in Egypt are
struggling with a sinking currency and a shortage of foreign
exchange, forcing some to make painful changes to their business
The central bank's foreign currency reserves have tumbled to
$13.5 billion, covering little more than two months' imports, as
tourism and investment have waned. So the central bank is
rationing U.S. dollar supplies in auctions, making it hard for
firms to get hold of dollars through the banking system.
"Every single businessman in Egypt is facing this problem,"
said Mohamed al-Sadat, vice chairman at Menco Group, a
mechanical and electrical maintenance company based in Cairo.
The business, which employs 200 people, buys components such
as transformers and ceramics from abroad for use in construction
projects. It needs dollars or sterling for the deals.
"You have to get the money from any place, you have to have
it, otherwise you are going to shut down and go home," Sadat
Some firms are turning to the unlicensed black market and
paying inflated rates for hard currency, he said. The Egyptian
pound is trading between banks at around 6.80 to the
dollar, but black market street vendors are asking over 7.0.
Business leaders say they expect the currency to depreciate
further; it has dropped 9 percent against the dollar since the
end of last year. Last week Moody's Investors Service cut
Egypt's credit rating for the sixth time since the uprising
against Hosni Mubarak two years ago, saying political
instability threatened consumption and investment.
The turbulence has made operating tough for Menco Group. The
company sealed a deal to import transformers three months ago,
with payment to be made in sterling; it then had to reduce the
order by more than 15 percent because the weakened Egyptian
pound raised the cost.
The firm did not want to cancel the deal entirely because it
would risk losing the trust of its supplier, Sadat said.
"Four years ago I used to sit with my employees and make an
annual plan: these are our targets, gentlemen, for the next
year," he said.
"Now we do that every single month, maybe every 15 days, we
sit together and put together a plan. It is very hard - we do
not have a vision of what will happen tomorrow."
Businesses of all sizes across Egypt are feeling such
pressures, especially those that rely on imports, said Hussein
Sabbour, head of the Egyptian Businessmen's Association, which
represents around 1,000 members.
Restrictions on foreign currency trade have made day-to-day
business a nightmare for importers, and working with foreign
partners has become difficult, he said.
He gave the example of his own company, which has an
engineering and design contract in Bahrain; part of the work is
subcontracted to a Bahraini company which he pays on a regular
basis through a bank transfer.
While six months ago the payment used to be processed in 24
hours, now he is hitting a bureaucratic brick wall.
"The bank says: why are you transferring it? Give me the
documents, let me see it. So the bank is very afraid that people
will send money outside Egypt for no reason," he said.
Egypt tightened currency controls in December in response to
a rush by some Egyptians to withdraw their savings from banks.
This month the restrictions were eased for tourists moving
currency across its borders, but stayed in place for Egyptians.
It is not yet clear how much Egypt's imports have been hit
by the hard currency shortage, which has become more serious in
the last three months. According to the most recent official
data, imports rose to $16.4 billion in the final three months of
2012 from $14.6 billion a year earlier, but the increase was
essentially due to higher costs for importing energy.
"Importing used to be extremely easy, money was available in
the banks...Now it can still be done, but it has become very
expensive," Sabbour said.
Small and medium-sized companies have been hit the hardest,
but even larger groups are rethinking the way they do business.
Ahmed Monsef, chief executive of Toyota Group's
operations in Egypt, said he faced issues including how to
obtain foreign currency and how to deal with banks to secure
letters of credit.
His toughest challenge is working out how to price imported
cars in Egypt, given changes in foreign exchange rates and weak
consumer sentiment. "There are of course different prices, it
constantly changes," he said.
While Egypt's pound has fallen against the dollar and the
euro, it has been fairly steady against the yen, so since
December Toyota in Egypt has been taking an average price
difference across the currencies, helping to moderate retail
prices, Monsef said.
Some companies are benefiting from the currency crisis;
exporters are finding they can sell abroad more cheaply. So far,
however, the boost to most exporters seems to have been modest,
partly because they depend to some extent on imports of
machinery and raw materials.
Egypt's non-oil exports rose only marginally to $3.4 billion
last quarter from $3.3 billion a year earlier, the official data
show. Most of the Egyptian pound's depreciation has occurred
since the start of this year.
Oriental Weavers, a major Egyptian rug and carpet
maker which generates around half of its sales from exports,
wants to boost that figure to about 60 percent in order to
benefit from any further fall of the Egyptian pound.
In 2012, its sales increased 6 percent to 4.9 billion
Egyptian pounds ($721 million) while net profit after minority
interests rose 12 percent to 272.9 million pounds.
The company is looking at ways to alter its product line to
adapt to tough economic conditions.
"We might compensate this slowdown in the local market with
higher volumes," investor relations manager Haitham Abdel Moneim
said. He gave the example of using rug making machines to
produce larger volumes of lower quality rug material.
"We are trying to be as flexible as we can. However, there
are still very challenging conditions."
Moneim said Oriental Weavers had learnt to adapt to the
depreciating pound and high costs of raw materials. A bigger
concern is whether Egypt's new leadership will improve business
regulations and try to strengthen the country's infrastructure,
"Unpredictability and change in terms of regulations, in
terms of ports that keep closing, roads that keep getting
blocked - that is a challenging business environment."