The Egyptian pound weakened against the dollar again last Wednesday in a second dip since the Central Bank of Egypt announced the flotation of Egypt’s currency on October 27, 2022. The pound has devalued by more than 70% since March 2022, a problem that has been intensified by Egypt recording its highest inflation rates in five years.
The Central Bank is moving toward a free-floating pound in order to receive financial assistance from the International Monetary Fund (IMF), but what does this mean for average Egyptians?
How Many Exchange Rates Exist Right Now?
First, it is important to note that not every industry in Egypt uses the official pound-to-dollar exchange rate. The Egyptian government sets an official rate but other industries may use a parallel rate, also known as a black market rate. As of mid-January, the official government rate is about 29 pounds to the dollar, but certain areas in the private sector, such as auto dealers, use a rate of around 35 pounds to the dollar, says Hany Genena, adjunct faculty member in the Department of Management.
This most recent dip in value should not impact those private sectors that already maintain a weaker exchange rate. “The private sector already prices its products and services using an exchange rate of 30 to 35 EGP to one USD, depending on industry. So, on the margin, the recent moves shouldn't add much to an already high inflation rate,” explains Genena.
Meanwhile, Egypt’s dollar shortage is causing some prices to continue to rise. “Producers of food and beverage are facing a decline in their inventories of raw materials and finished products due to dollar shortage. So, the limited supply is triggering an upward increase in the selling price,” Genena says.
In the public sector, government subsidized commodities, like fuel and food items, will change prices as well. “The price of goods and services from the government will change, since they follow the official exchange rate. Hence, inflationary pressures will likely continue to grow and hopefully peak by the second financial quarter of this year, which is April 1 to June 30,” Genena states.
What Does the Future Hold?
How much lower can the pound’s value go? Hopefully, it should be stabilizing soon, Genena says. The government is slowly staging down the value of the pound to match the real market value, otherwise known as free-floating. If the government sticks to schedule, the pound should reach its final, lowest value by the second financial quarter of 2023, Genena forecasts.
“I believe the EGP may overshoot temporarily to 32 or 33 pounds per dollar before appreciating during the second half of 2023 to around 28 pounds per dollar,” he predicts.
This should open up more channels for imported goods, an area which Egypt has been struggling with since the beginning of the war in Ukraine.
“The first benefit of floating the pound is that Egypt will receive official funding from multilateral partners like the IMF, who required the decision for their collaboration agreement,” states Genena. “The second benefit is that once the government scales down the value of the pound to its real market value, it will simplify the foreign exchange into a single rated currency. This will encourage private imports that should alleviate the import shortage.”
While the government and international organizations are initiating this long-term plan, Genena states that the average Egyptian still has to cope with the short-term fallout. “While inflation may not increase substantially with this last devaluation, it remains high — putting financial strain on families across the country, particularly those in the middle or lower classes who do not own USD, properties or stock,” he says.
What Can Egyptians Do?
Some banks are encouraging Egyptians to save money by offering certificates of deposit. A certificate of deposit allows an individual to deposit money in the bank, under the assumption that they will not withdraw that money for an entire year. In return, the bank will apply an increased interest rate on that money, compared to the interest rate on a normal deposit that could be withdrawn at any time, making it a better long-term investment. This should improve inflation rates in the long term, as it did when certificates of deposits were used during the currency devaluation of 2017.
Genena advises that low-income families should take advantage of support programs from the government, while middle-income families should invest whatever they can from their savings into inflation-proof assets, such as gold coins, stocks, or the certificates of deposit.
Thankfully, there is a light at the end of the tunnel for Egypt, according to Genena. “It is important to remember that a key strength Egypt possesses at this stage is that banks are well-capitalized and capable of absorbing shocks. Egypt should be able to sustain growth - no matter how anemic - despite the magnitude of the financial shock,” he concludes.
On December 4, Business Forward, the AUC School of Business knowledge portal, hosted its fifth annual event under the title “Egypt’s Economy 2023: Structural Reform Amidst A Volatile Global Outlook” at AUC Tahrir Square’s Ewart Memorial Hall.
To make sense of all developments and factors that affected Egypt’s economy in 2022, Business Forward and its content partner Dcode Economic and Financial Consulting created the annual Business Forward year-in-review Video in collaboration with the School’s Department of Economics, which is celebrating its Diamond Jubilee this year.
A floating pound: promises and missed opportunities for businesses and exporters
The first session of the event titled “What does the devaluation mean for business, industry, and exports?” featured an enriching discussion between Hisham Ezz Elarab, managing partner, HE Advisory and non-executive board member of the Commercial International Bank (CIB Egypt), Maha Saleh ’02, foreign trade expert and director of government affairs at Apple, and Hany Genena '95, economist and adjunct professor of management, AUC School of Business.
"Over the past 50 years, we have not been practicing what we preach. We did everything other than trying to reach price stability thinking that the exchange rate is part of our dignity,” said Hisham Ezz El Arab, renowned banker, non-executive chairman of the Commercial International Bank (CIB) and managing partner of HE Advisory.
Read more insights on the flotation of the pound here.
Unraveling Egypt's debts: problems and solutions
The second session titled “How should Egypt’s external debt be perceived?” featured Ahmed Galal, economist and former Minister of Finance, Alia El Mahdy, professor of economics, Faculty of Economics and Political Science, Cairo University, Ahmed Kouchouk ‘99, Vice Minister for Fiscal Policies and Institutional Reform, Ministry of Finance, and moderated by Dina Abdel-Fattah ‘07, chair, Department of Economics, AUC School of Business.
“Debt is not a bad thing, it is even necessary especially when you have such low private savings and low incomes," said Ahmed Galal. The problem, he explained, is that the reasons why Egypt had to borrow in the first place do not get addressed at the roots.
Read more insights on Egypt's external debt here.
Essentials for economic reform: what are the prospects of Egypt's private sector?
The last session of the day was titled “What are the expansion prospects for the private sector?” and featured Khaled El Mikati, chairman of the board at Mikati Investment and Trading Co. (MITCO), Yasmine El-Hini, acting country manager for Egypt at the International Finance Corporation (IFC), Sameh Hassan '87, chief executive officer at Savola Foods Co., and Maged EzzElDeen, country senior partner at PwC Egypt.
"There are several ways to attract FDI, such as IPOs; however, it can be tricky since it is subject to global market conditions. Alternative investment schemes are strategic investments and Public-Private Partnerships (PPPs), as well as concession agreements," explained Yasmine El-Hini.
Read more insights on Egypt’s private sector dynamics here.
Launch of #IMovedMyBusinessForward campaign: family business edition running until May 2023
The event also saw the launch of the latest edition of Business Forward’s annual digital campaign. Watch the campaign video to learn more and fill out this form to join the campaign. This year’s campaign focuses on family businesses and runs until May 2023.
“The campaign #IMovedMyBusinessForward will invite family businesses of all sizes to present their family business stories and to share their experiences, to reflect their challenges and perceived opportunities. In parallel, we will be also sharing through this campaign latest knowledge and research about the discipline of family business,” said Randa el Bedawy, associate professor of Management at AUC School of Business.
This year’s annual event and campaign were generously supported by PwC.
Watch the full event recording here or check out more snaps from the event here.
On November 7, AUC School of Business hosted a roundtable for deans of six leading African business schools as well as representatives from the African Chapter of the Principles for Responsible Management Education (PRME) and the European Business Schools for Climate Leadership (BS4CL), who gathered to launch of the Business Schools for Climate Leadership (BS4CL Africa) initiative.
BS4CL Africa brings together business schools to build a collaborative framework for climate action to transform business education curricula to match the needs and adapt to the realities of the African continent.
The initiative also invites contributions from the private sector and civil society and will mirror the ambitions of the UN Climate Conference (COP27) which took place in parallel in Sharm El-Sheikh, Egypt. BS4CL Africa is based on the model inspired by the BS4CL group, initiated by eight leading business schools in Europe at COP26 last year.
Peter Tufano, dean and professor emeritus, Saïd Business School at the University of Oxford, Baker Foundation professor at Harvard Business School and BS4CL founding member, shared his support of the Africa-centered edition of BS4CL
“I am thrilled to represent BS4CL at the launch of BS4CL Africa aligning with the opening of COP27. Business schools and businesses have much to contribute to battling climate change and its impacts, and BS4CL Africa will bring an authentic and important African perspective to this global and local issue.”
The roundtable was attended virtual and in-person by: Sherif Kamel, dean, AUC School of Business in Egypt, Thami Ghorfi, president, ESCA Ecole de Management in Morocco, Morris Mthombeni, dean, Gordon Institute of Business Science in South Africa, Yinka David-West, deputy dean, Lagos Business School in Nigeria, David Chiawo, dean, School of Tourism and Hospitality at Strathmore University in Kenya, Mark Smith, director, Stellenbosch Business School in South Africa, Jonathan Foster-Pedley, chair, Association of African Business Schools (AABS), Sarah El-Battouty, Global Ambassador for the United Nations Framework Convention on Climate Change (UNFCCC), Mette Morsing, head, Principles for Responsible Management Education (PRME) at UN Global Compact, Peter Tufano, dean and professor emeritus, Saïd Business School at the University of Oxford, Baker Foundation professor at Harvard Business School and BS4CL founding member, Andrew Jack, global education editor, The Financial Times, Sherwat Elwan Ibrahim, chair of PRME Chapter Africa, Mumbi Wachira, vice-chair, PRME Chapter Africa, Samer Atallah, associate professor of economics and associate dean for graduate studies and research, AUC School of Business in Egypt, Fadwa Chaker, director of research, ESCA Ecole de Management in Morocco, and Ali Awni, professor of practice and director at The John D. Gerhart Center for Philanthropy, Civic Engagement and Responsible Business at AUC School of Business in Egypt.
“BS4CL Africa exemplifies how African businesses are already taking responsibility for their impact on the planet and considering the planet’s impact on their businesses. PRME Chapter Africa continues to produce thought leadership in this area through its programs and network. After its launch one year ago during the AUC Business Forum, its membership has already grown to 20 schools out of the larger PRME network of over 860 higher education institutions. The BS4CL Africa initiative is sure to be one of high impact into the future”, commented Mette Morsing.
“We are excited about the momentum of BS4CL Africa and envision that the Deans Roundtable will be a continued collaboration for impact, one which closely aligns with the ambitions of PRME,” continued Sherwat Elwan Ibrahim.
The discussion focused on climate challenges and policies and the need to address them in business curricula through teaching, case studies and projects to help shape the next generation awareness and engagement in climate action.
Recognizing the critical role that higher education plays in addressing climate change and its associated challenges, Dean Sherif Kamel said
“Our ultimate goal is for business schools to effectively address climate change issues by integrating timely and critical subjects within the business schools’ ecosystem. This encompasses teaching, curriculum, cases, and projects including research endeavors and business development activities, as they help shape the next generation of leaders to impact society.”
The speakers tackled topics, such as the required resources for associated activities to increase awareness on climate leadership, including gathering Deans’ support, institutional commitment, dedicated faculty, and partnership champions.
“We are a bridge between the public and private sectors, and we need to use this to affect change in policies for the betterment of society,” stated Yinka David-West.
“It is our responsibility to be leaders of change in our societies,” echoed Thami Ghorfi.
The discussion candidly addressed issues and possible hindrances like resource limitations, prioritization conflicts, school competition, industry commitment, and being able to sell value to students as business schools. As a result, the initiative plans to develop a white paper for attainable action by business schools.
Check out more footage from the Deans Roundtable here.
A “just transition” seeks to create equilibrium between developed and developing countries.
As major flooding wracks Pakistan, droughts choke much of East Africa and wildfires raze Australia, it is becoming clear that the consequences of climate change are not distributed equally across the globe. Industrialized countries in the Global North, particularly those with strong colonial histories, have the worst carbon emission records. Yet it is the Global South, with relatively lower emissions, that is bearing the brunt of the resulting environmental catastrophes.
Ali Awni, professor of practice in the Department of Management and director of AUC’s John D. Gerhart Center for Philanthropy, Civic Engagement and Responsible Business, explains the need for a “just transition” to address this inequality.
To read the full article, click here.
On Friday, December 9, the Association of MBAs (AMBA) and the Business Graduates Association (BGA) hosted a Gala Dinner at the Biltmore Mayfair, where the winners of the AMBA & BGA Excellence Awards 2022 were announced. The ceremony was attended by more than 210 business school leaders, as well as category finalists, judges and members of the media.
