Egypt's struggles to obtain sufficient foreign currency liquidity to establish and maintain a sustainable flow of import letters of credit (L/Cs) has prompted several private and state-owned Egyptian companies to sell parts of their businesses to foreign buyers to access US dollars.

The shortage of foreign currency, exacerbated by commodity price hikes since the Russia-Ukraine war, prompted the authorities working through the central bank to use a range of controls over L/Cs with the aim of shoring up Egypt's foreign reserves.

Background

In February 2022, Central Bank of Egypt (CBE) introduced new rules requiring importers to use L/Cs and then issued a notice to banks ordering them to arrange only L/C transactions for imports of certain goods, which stifled access to essential imports that the country's own agricultural, industrial and health sectors needed to produce finished goods.

Even though the CBE abolished the requirement for an L/C to import goods from 31 December 2022 and Egypt's economy was bolstered by a US$3 billion International Monetary Fund (IMF) bail out, access to foreign currency remains tight.

Underlining this state of affairs, Cairo is currently trying to negotiate a new deal with the IMF to expand its US$3 billion rescue programme to around US$6 billion.

Taking control

In the meantime, companies have sought their own solutions. For example, a newly-established UAE-based firm, Global Investment Holdings, has acquired a 30 per cent stake from the government in Egypt's biggest tobacco manufacturer, the partially Egyptian state-owned Eastern Company.

The deal reportedly involved Global Investment Holdings depositing US$150 million in Eastern Company's account to finance the purchase of raw materials it needs to produce finished goods.

Private sector deals

Several deals have been reported in the private sector. In one recent deal, Egyptian manufacturer of home appliances, Universal Group, sold its water heater factory to Italy's Ariston.

Sources say the move aimed to secure foreign currency liquidity to ensure the continued operation of Universal's other subsidiaries.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.