Measures imposed by the Egyptian government a year ago to crush the currency black market have had the opposite effect.
The measures are pushing business owners further into the arms of illegal money changers and forcing some importers to carry large amounts of dollars in cash.
While many Egyptians are trying to keep their businesses going, the new rule has created a new generation of currency dealers who are exploiting a widening gap between the country’s pounds and the black market exchange rates.
There is a huge gap. Sources of hard currency have gone down, however imports have not gone down at the same rate.
The country’s black market has flourished since the 2011 “Arab Spring” .The uprising scared off tourists and foreign investors, leading to shortages in dollars.
Head of Equity at Beltone financial, Hany Geneina said the value of imported goods in Egypt is around $60b and export is between 20 to $25b .
“There is a huge gap. Sources of hard currency have gone down, however imports have not gone down at the same rate. The problem lies in the fact in the past two years, the central bank and the government maintained the spending rate and the growth rates in cash flow, so local demand remained at the same rate, a part of which is imports, all the while the availability of hard currency was declining, which is what created this gap that I’m referring to,” he said.
Beltone financial is a brokerage firm with offices in the Middle East and North Africa.
Egypt’s central bank has since scrapped limits for individuals and importers of essential products.
Restrictions remain for businesses bringing in non-essentials, such as tyres, but they are finding loopholes and said the black market is booming more than ever.
Despite this mounting downward pressure, Egypt has resisted a major devaluation.
Geneina explained that with the value of imports around $60 billion, the black-market solves around 50 percent of the current crisis.
“By definition, the black-market is not beneficial. But, in the situation we are currently in, the black-market is the place which holds an abundance of dollars, and thus it temporarily solves the crisis. In its current state, the value of transactions in the black-market, according to different statements, is between 20 to 30 billion dollars.”
On Tuesday, the dollar was selling at about 9.80 pounds on the black market compared with the official rate of 7.73. It has fallen 10 percent on the black market in the last month alone.
As the crisis deepens, business owners – many of whom rejoiced when President Abdel Fattah al-Sisi took power in mid-2013, are grumbling that currency uncertainty is hurting the economy.
Bankers say measures to ease the rules are not enough to curb the black market’s appeal, which has sucked up hard currency from the banking system, exacerbating the shortage.
The central bank has also revoked the licences of four exchange companies this year.