Luxor4u

In a surprisingly up-beat advice note Egypt based financial services group, Beltone Capital of Egypt ,thinks:

The currency will be devalued to 12 in the next few days.

Foreign Currency reserves will exceed $US25 billion by November.

Interestingly they mention a number of specifics which were a surprise to me:

Egypt is raising hard currency on the Eurobond market.

Egypt is doing a currency swap with China – presumably to get Yuan.

Another $US2 billion is coming from Saudi.

It all sounds pretty good. Maybe the message is that once the next devaluation is done potential investors/Eurobond investors/Chinese/Saudis can move with some confidence that after the devaluation their capital wont be written down by foreign exchange losses from a further one.

Any devaluation, however, isn’t going to be good for the long suffering lower classes and the poor and there are a disproportionate number of those in Upper Egypt.

Its only an advice note and Beltone has a checkered history. However, its reported in http://www.albawaba.com/business/egypt- ... ion-888826 but not in al Ahram which is running a puff piece on the increase in the reserves.Most independent Egyptian media are running the story.

Trust in Beltone depends on how many games and payback you think is going on in the nether world of Egyptian high finance and politics - although these two worlds are the same thing.

Its history, and the history of its competitors, shows how inbred the insiders are, why overseas investors stay away and why a lot of commercial decision making is political. There is a good reason why international banks and finance houses give Egypt a wide berth and why an industry that once had international expertise is not dominated by government dinosaurs and politically connected monopolists.

Beltone has some UAE ownership but is owned by the Mubarak monopolists Orascom/Sawiris family. The same family which now owns the largest political party in Parliament and whose former chief executive of the family company is now Minister for Investment. Until he got tired of it he also owned ONTV until he sold it to a steel magnate who also owns his own political party and was looking to expand his influence with this loss making TV station. Sawiris may still own some of Orange telecom (he used to own it all) but has spent the past few years moving his very large assets to Belgium whilst still continuing his long interest in assets in North Korea and other kleptocracies.

The Sawiris party have produced some poor business outcomes for their owner after several years of fawning submission. For example, Sawiris wanted to take over a rival financial services/venture capital/investment bank and was blocked by government in none too subtle terms. The state owned National Bank of Egypt was used to spoil the deal but never completed its mooted counter offer. After the courts intervened in his favor and cleared his way, the Central Bank of Egypt then intervened and wanted to look into some Sawiris history. Think that someone might have been a bad boy and wasn’t to be given his supper.

Sawiris wasn’t happy: ‘“Be warned if you wish to invest in Egypt because the state will enter and compete with you using public funds.” he said. http://www.egyptdailynews.com/egypt%20d ... forces.htm. (a good no nonsense, truthful on-line Egyptian newspaper) Sounds like one bully loosing to another but the above article says ‘’is part of a much broader agenda of centralizing control of the economy in the hands of the opaque military interests that profit from Sisi’s leadership.’. It also suggests that the government’s favored investment bank/broker is EFG-Hermes and they don’t want more competition.

Sawiris/Beltone might have some motives for causing chaos in producing this advice. Who knows.

Beltone/Sawiris’s attempt two years earlier to take a major slice of the much larger (and politically well connected) EFG-Hermes finance house was also unsuccessful.

There is a sense with these businesses that the only thing that changes is their alliances. EFG-Hermes was previously at the centre of Mubarak dealings with the corrupt Gamal on the board (he owned 20%) and virtually running it for his Gulf paymasters. The Panama tax avoidance papers mention it and it made money out of valuing and floating public assets for a song. What do you have to do to get run out of town? Its still the biggest in its sector, has never been prosecuted and is now the market leader. Maybe its Gulf owners provide protection?

Of course EFG's glory days under Mubarak – advising on government floats and buying shares in the privatized businesses – are well behind it but life on the Cairo bourse is still a bit like the wild west. No tax on capital gains, insider trading, confidential market sensitive advice available for a song, huge fees paid by the camel billionaires, general underregulation and little oversight/enforcement etc and no-one ever goes to jail. If the media speculation on speculation is right the formerly discredited EFG Hermes is back in favor.

But this is a long way from what will happen to the pound in the next few days and whether all that hard currency will arrive before bedtime.

What a mess.

Well with the fall in the value of GBP (at a three year all time low) devaluation of the EP will just about keep everything on par for ex pats.

carrie wrote:Well with the fall in the value of GBP (at a three year all time low) devaluation of the EP will just about keep everything on par for ex pats.

How?
Yes the pound is at a 3 year low with the Euro but its at a 31 year low with the Dollar more important here because the Egyptian pound is valued against the Dollar with everything following that.

With Sterling worth less and the Egyptian pound devalued everything will be more expensive as happened in March when the EGP was devalued at a lot less percentage than now predicted.

Any how it didn't happen just yet.

I don't know about Egypt devaluing the pound, I have read they intend to float it. Because of the way the Egyptian Treasury collect taxes, I believe at point of sale, then the drop in the GBP and the supposed raise in the value of GBP to LE will no doubt mean prices in Egypt will go through the roof, cancelling out any thoughts of the GBP to LE exchange so not good news for many. Back to Skyscanners and Ebookers for a few I think

A float - even a managed float - will automatically lead to a devaluation in the short term. If I understand your tortured point.

Dr. Ayman Ismail of the AUC has stuck his neck out and made a number of predictions about the pound/reserves/interest rates/inflation etc. Apparently he is highly regarded as critic of current policies and a bit of a 'good guy'.

His views are, I think, worth posting in full. His gist is that, short term, it will be rocky and long term there are a lot of fundamental reforms to be done before benefits will flow. He has something to say on effects on the real estate market - two bob each way.

“First, here is the government plan: (putting the different pieces of the puzzle together from the different sources).

1. Price discovery for the real equilibrium exchange rate. Over the past months, the government did not attempt to defend the EGP by pumping any extra USD in the market, which they previously tried and failed. Mostly because they didn't have much USD to pump. The result is that the current exchange rate is pretty much the free float rate (now around 13-13.25 EGP/USD).

2. Get more USD. The government has been negotiating like crazy to get as much USD as they can. Seems like they finally managed to get $6-8 USD billion from a number of countries, development banks, as well as the IMF. This will help cool the markets down, although it would be wise not to use the scarce Dollars to defend the Pound again.

3. Raise the interest rates. A temporary but steep increase in the interest rates will take place along with the devaluation. It give an incentive to both Egyptians and foreigners to keep their EGP, rather than Dollarize, and also to curb inflation.

4. A sudden and steep devaluation (the steeper the better, although it is not clear yet what will the exact rate be. Expectations are between 11.50 - 13.00.)

5. Gradually reopen and decriminalize the private exchange market. And gradually remove the restrictions on credit cards etc.

6. Borrow $3-5 billion from international markets by issuing more sovereign bonds. Four international banks have already been selected to work in this bond issue.

The ultimate target is to grow the reserves back to $25 billion as soon as possible.
7. Make sure the social safety net is prepared, at least to provide basic food and necessities to the most vulnerable to avoid major social unrest.

8. Sign the IMF agreement, which would provide $12 billion over the next 3 years. (Target is the third week of October).

9. Continue with the privatization plan for several SOE's, including at least one bank. Fix the mess in the telecom sector 4G and try to get as much licensing fees out of it.

10. Expand the collection of taxes, especially real estate tax and the new VAT.

11. Also continue with the reduction of subsidies, especially gasoline, which is responsible for a substantial part of the budget deficit.

So what are the implications?

1. Prices will shoot up immediately. Inflation is likely to increase substantially, at least for the next quarter.

2. Exchange rates will spike over the short term, but they are likely to move back close to the current rates, and possibly even lower.

3. Expect a wave of stagnation in the economy, with everyone scared of buying or selling, at least till the turbulence declines.

4. A price correction in real estate markets, especially for anyone who is eager to sell an asset immediately. (However, this one is debatable and could go either way).

Aside from these negative effects, the hope is that this devaluation and floating should also bring a number of positive effects that will make it worth all the pain:
5. Increasing the competitiveness of our exports, including industrial and agriculture exports, tourism, and labor (yes, these are our primary exports!). And allowing
local manufacturers to get the needed supplies of raw material and equipment.

6. Restoring the previous levels of remittances (which are currently channeled to the black market).

7. Signaling to all the FDI that was waiting to start flowing again, which is the most critical factor for restoring growth.

8. And eventually, restoring balance in the forex markets.

So is this a good plan?

The reality is that the next quarter will be painful, especially for the middle class (or whatever is left of it) as well as small businesses. Individuals will experience a substantial decline in their standard of living, with unpleasant choices to prioritize their spending. SMEs will experience delays in revenues and cash flow problems. Having said that, we don't really have much of a choice, the current policies are disastrous and not sustainable, and we simply can not continue like this.

The bottom line is that we really did not need to be here!

The Pound should've been devalued slowly and continuously over the past 3 years. The current and previous CBE governors are directly responsible for this miserable situation. Today, we are paying the price of bad policy (which I call the stupidity premium). However, Egypt's economy remains resilient and will adjust quickly. And we can recover quickly if we implement a consistent and proper policy framework.

As for the next month or so, brace yourself for major turbulence.” http://www.cairoscene.com/BusinessAndPo ... AUC-Schola

He leaves out cutting red tape, dealing with corruption, reforming education, cutting the public service, dealing with the commercial 'insiders', collect taxes from the rich and reforming the commercial legal system - but you can't have everything.

The authors credentials are impressive.

Dr. Ayman Ismail is the Assistant Professor and Abdul Latif Jameel (Saudi conglomerate – not many rich Egyptians donate to universities) Endowed Chair of Entrepreneurship at the American University in Cairo School of Business. His research focuses on entrepreneurship; venture capital and private equity in emerging markets; economic development in the Middle East; industrial strategy; international technology diffusion and knowledge transfer to developing countries; technology policy and innovation; energy and food security; and political economy of development.

Dr. Ismail is a former Research Fellow at the Belfer Center for Science and International Affairs at the Kennedy School of Government in Harvard University. He received his PhD in International Economic Development from the Massachusetts Institute of Technology (MIT). He also holds a bachelor degree in engineering and an MBA from the American University in Cairo, and a master in city planning and geographic information systems from MIT. He also worked for McKinsey's.

He set up the AUC Venture lab to train entrepreneurs and it was voted Top Performing Incubator in Middle East and North Africa by an independent Swedish body which rates these things world wide. Long time since anything in Egypt won a prize.

In 2012, Ayman was selected as a Young Global Leader (YGL) by the World Economic Forum (WEF)

His facebook account is alleged to be famous and at: https://www.facebook.com/search/top/?q= ... airo%20auc

A related website of a privately run Egyptian social entrepreneurship incubator which he co-founded is http://www.nahdetelmahrousa.org/

A lot will depend on whether small and medium enterprises are given a chance to grow in an economy dominated by state enterprises, monopolists, bureaucracy and banks which wont lend. For a full view which also features Ayman see: http://egyptianstreets.com/2016/08/05/f ... -in-cairo/

Ayman Ismail is a common name in Egypt and includes one Harvard pup who has sold his young soul to lead the new capital city project. His facebook is garbage.