Egypt: Amid continued EGP devaluation and rising inflation, merchants demand payment in US$

The dollar shortage crisis in Egypt was reflected on the availability of many consumer goods, because of the restrictions imposed by the Central Bank of Egypt on imports, which has put many companies, especially car dealerships, under the pressure of their customers’ demands.

These pressures prompted some car dealerships, including Toyota Egypt, the official agent of the Japanese Toyota brand in Egypt, to demand that car buyers that applied to buy months ago pay the price of their cars in dollars instead of the Egyptian pound, amid questions about the repercussions of such move, reported Arabi21.

Last February, the Central Bank of Egypt decided to cancel the use of “collection documents”, replacing them with “documentary credits”. In this credit system, the relationship is between the importer’s bank and the exporter’s bank; the importer is obliged to pay the value of the imported shipment in advance, although its cost is higher and takes longer.

Since last March, the value of the Egyptian pound has fallen by more than 25 per cent reaching around 19.70 pounds to one dollar, exceeding its highest price in the country’s history. This was in response to the International Monetary Fund’s (IMF) demands to adopt a more flexible policy on the pound exchange rate while it continues to decline daily.

This led to a decline in car sales in Egypt by more than a half last August, reaching 8,700 thousand vehicles compared to more than 18,000 during the same month of the previous year, with a decline of 52.5 per cent with prices surging by at least 50 per cent.

The sales volume of cars in Egypt decreased to 148,500 thousand vehicles during the period from January to August of this year, compared to 186,300 thousand cars during the same period last year, with a decrease of 20 per cent, according to data issued by the Egyptian Automotive Information Council (AMIC).

Because of their inability to meet the needs of their customers due to the shortage of the dollar in the market, some companies contacted buyers who paid in advance and instructed them to go to the company’s headquarters for a refund because the companies were unable to supply the vehicles.

This phenomenon has extended to real estate companies, with the announcement of a large real estate development company putting a residential development up for sale in dollars instead of the Egyptian pound, provoking strong reactions among Egyptians.

As for the legality of companies demanding their customers pay in foreign currency, Head of the Egyptian Importers Division Ahmed Shiha explained: “The law prohibits any contracts other than the local currency, what happened are violations, and some companies are taking advantage of the circumstances and the customers’ needs for specific products. The truth is that whoever commits this is subject to legal accountability, and there is no dealing other than the local currency.”

“There is limited dealing in dollars in some sectors, such as tourist hotels, international and private universities and schools. However, they require the value equivalent of the expenses and fees in foreign currency, not a payment,” Shiha shared with Arabi21.

“It would have been better for these companies to announce their new prices equivalent to the value of the product in dollars at the price adopted on the day of purchase or contract, rather than demanding customers pay in dollars since the banks will not accept that a customer deposits an unknown source foreign currency,” He added.