If we agree that everybody is an investor in a way or another, then everybody is definitely concerned by the US Dollar exchange rate, simply because it affects prices in a many ways: prices of commodities, loans, services and others.

Supply & Demand define prices changes. To be more accurate, in Egypt it’s availability that matters most. It’s then important to track the US Dollar routes in Egypt. Where does it come from? Where does it go?

Inflows

Where do the US Dollars come from in the first place?

Companies With Non-Revenue-Generating Teams In Egypt

If a companies builds a call-center in Egypt that serves its clients worldwide, this means dollars are coming for the purposes of building up those departments and centers. The added-value of those centers has an effect outside of Egypt. No direct sales are generated from such services. This means no revenue will be reported back in dollars to HQ. This is simply an inflow of US Dollars.

Foreign Companies That Invest More Than They Sell

Oil companies that own or run drills in Egypt. These companies invest a lot of Dollars to build and operate drills, get raw materials (in this case oil) and ship it across the globe. While some of the materials are sold in Egypt, hence sales in US Dollars are reported back to HQ, yet the majority of the materials are shipped out of Egypt. Some USD dollars definitely flow in as tariffs and customs, but this is tiny compared to the inflows of investments.

Institutions That Operate In Egypt In US Dollar

Some institutions & enterprises are located in Egypt but still operate in US Dollar in most of the transactions. This is an act of balancing the effect of ForEx on their business and while it’s not really agreeable within Egyptian customers, it’s sometimes the smart and only way to help those companies avoid losses due to ForEx problems. Examples of those are The American University in Cairo, American Express & others, mainly American companies that operate in Egypt in US Dollar.

And of Course Tariffs & Customs

The famous Suez Canal and the likes, those are all sources of USD Dollar inflows into the country. Those are mainly related to cross-boarder trading. Foreign companies that don’t benefit from free-trading agreements are supposed to pay those tariffs in US Dollar.

Outflows

Here comes the interesting part!

Multinationals, Simply Put

A multinational with any sort of revenue-generating (sales) presence in Egypt will definitely eat up all the investments they had made before and even more. If Vodafone or Procter & Gamble had invested a huge amount of US Dollars to start business in Egypt, by now, those companies have probably collected more US Dollars than they invested. Sales are in Egyptian Pounds but are all transacted in Dollars to be reported to HQ, regardless to the nature of the local entity, be it a Limited Liability company or a Public one.

Tourism, Yes You Read It Right!

Believe it or not, it takes much less US Dollars to do tourism in Egypt now than before, while it takes much more for Egyptians to do tourism abroad. Those transactions were designed to bring in more US Dollars from foreign tourism but this amount, especially in the late days, is eaten up by the transfers made by Egyptians who travel. The latter are most probably above average in wealth, which makes their travel expenses much more than the below-average tourists that come to Egypt with a very small amount of US Dollars.

Investments

While we would like to believe that foreign investments would flow some money in, reality is that foreign investments mainly come in the form of funding multinationals in Egypt. In a meeting with Ahmad Atwan, Managing Director, Morgan Stanley, in October 2015, Atwan confirmed that at least in Morgan Stanley, there are no investments in any local business in the whole region. Not a single portfolio of Morgan Stanley finances a company or a project under local management in Egypt or the whole region. In other words, most of the foreign investments are then collected back in the form of revenues and reported back to HQ. While this US Dollar circulation is definitely useful, it is still not as big as the reverse investments made by Egyptians in the famous global stock markets in the US, Europe and Japan.

ahmad-atwan
Ahmad Atwan, Managing Director, Morgan Stanley. Photo Courtesy of Arab Bankers Association in North America

There are definitely other inflows are outflows. But what concerns us most is the ending balance of the all of those. Unfortunately the amount of US Dollars kept domestically is declining. While it’s important to keep our monetary reserve, it is also important to invest with our local currency in our local businesses, which is something Wall Corporation is pioneering in Egypt. Wall Corporation is encouraging everybody to invest very tiny amounts in one or more small businesses. We help you choose the right business to invest in.

Advertisements

Written by The Wall Corp Journal

The WCJ team manages the firm's journal and serves as a main platform to broadcast our views, analyses, comments and advice on the economy, investment scene and business outlooks.