Egypt's retail and industry sectors feel the heat from dollar shortage

Restriction on imports forces international clothing chains to display winter garments for lack of summer wear

People walk past a currency exchange shop displaying a giant US dollar banknote in downtown Cairo. AFP

It does not normally get cold in Egypt until late November or early December, but the mannequins in the Zara and Springfield shops at a glittering Cairo mall are wearing woolly sweaters, windbreakers and leather coats: stock from last winter's collection.

“We are short of summer clothes because we had problems importing them this year,” said a shop attendant at Springfield. “We needed to fill the shop space, so we brought out winter items.”

A stone’s throw away at an Ikea store, a sales attendant was deeply apologetic for having run out of electrical bulbs, garden light fixtures and a wide range of other items.

“We have had dozens of containers held at the Alexandria port for months,” said the Ikea attendant. “We are running out of so many items. We sell what we have at significantly higher prices compared to January and February.”

A severe dollar shortage caused by the Russia-Ukraine war has forced Egypt to impose a restriction on imports, particularly of non-essential items such as clothes, cars, home appliances, car tyres and luxury food items, which has wreaked havoc on the retail and industry sectors.

Higher global energy, food and shipping costs resulting from Russia's invasion of Ukraine in late February have swelled Egypt's already huge import bill of about $80 billion a year.

Meanwhile, higher US interest rates have made it more expensive to service Egypt’s foreign debt of $83bn and made the country's bond and treasury bill issues less attractive to foreign investors. An estimated $20bn of foreign investment has been pulled from the local debt market this year because of the uncertainty over emerging markets.

The war also halted the flow of Russian and Ukrainian visitors — who normally account for about 30 per cent of all foreign arrivals — just as the tourism industry was starting to recover from the slump caused by the coronavirus pandemic.

Egypt’s foreign currency reserves, a psychologically important indicator, fell from about $40bn at the end of 2021 to $33.14bn in July.

The government has responded by devaluing the currency by 14 per cent in March, banning the export of essential food items and opening negotiations with the IMF to reach a deal on further structural reforms and a possible loan from the Washington-based lender.

The result overall has been a steep rise in prices, pushing the inflation rate up to nearly 14 per cent in July, the last month for which official figures are available. There is growing expectation that there will be another currency devaluation, which would push prices up further.

The spike in prices forced the government to introduce costly measures to ease the burden on the poor and middle class.

Last month, the government said it would allow holders of state-issued food cards to buy more subsidised items. It also pledged to keep the price of subsidised bread, a staple for Egypt's 103 million people, unchanged despite paying more for wheat imports that total about 12 million tonnes annually.

On Wednesday, the government announced a package of measures to clear the backlog of goods piled up at the country’s ports, but some industrialists and businessmen are sceptical about whether it will be enough to repair the damage caused by the import restrictions.

“How quickly they’ll implement the measures to clear the backlog of imports held at ports is the real test,” said a prominent Cairo-based industrialist who wanted to remain anonymous.

“And that’s just one of our worries,” said the businessman, who has had a shipment of raw material held for months at the port in Alexandria. “The real problem in Egypt is that there’s hardly any locally produced goods that don’t have a foreign component.”

The import restrictions and currency devaluation have had a domino effect, with some businessmen taking advantage of the lack of new supplies to raise prices beyond the levels needed to compensate for the depreciating pound.

“My supplier is charging me three times what I paid for materials before the devaluation,” said an industrialist whose factory produces sports supplements. “I have raised my prices by 15 per cent and I am not even breaking even. If I raise more, my sales will slump.”

In a move that underscored the seriousness of the problem, the government in August dimmed the lights at Cairo’s Tahrir Square and ordered shops and malls to turn down air conditioning to reduce electricity consumption and free up some of the natural gas used by power plants for export to earn more foreign currency.