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USD exchange rate ‘stable,’ reaches 8.88 EGP
The USD exchange rate has been stable against the Egyptian Pound, where it reached Wednesday 8.88 EGP for sale and 8.85 for purchase. Euro exchange rate reached 9.95 EGP for purchase and 9.98 EGP for sale.
Egypt considers international auction after mobile operators spurn 4G licence offer – REUTERS
CAIRO, Sept 22 Egypt said it will consider auctioning its fourth-generation (4G) licences on the international market after all three of the country’s existing mobile phone operators turned down an offer to acquire them.
Egypt, one of Africa’s largest markets, is selling four 4G licences as part of a long-awaited plan to reform the telecoms sector and raise much-needed dollars for depleted government coffers.
It gave the four companies already operating in Egypt priority, but the only taker was Telecom Egypt, the state fixed-line monopoly which needs the 4G licence to enter the mobile market directly for the first time.
The established mobile operators, Vodafone Egypt, Orange Egypt and Etisalat, rejected the deal, saying the terms on offer were not viable.
In light of the rejections, Egypt’s telecom regulator said on Thursday it would consider other means of introducing 4G services to the country of 90 million, including an international auction.
“The options will be presented to the board of directors at its next meeting, in early October,” it said in a statement.
The rejections could leave the way open for Kuwait’s Zain , China Telecom, Saudi Telecom and Lebara KSA, which had all expressed an interest in acquiring Egyptian 4G licences if the established companies bowed out.
There was no immediate statement from those companies.
Vodafone Egypt said it had rejected the licence because it did not offer enough spectrum to operate 4G services properly.
“Vodafone Egypt confirms that it would be ready to acquire a 4G licence if the terms and conditions can be revised,” it said in a statement.
Orange Egypt also said it could not agree to the terms. Etisalat has yet to issue a formal statement.
Sources told Reuters last month the three companies had also objected to terms requiring 50 percent of licence payments to be made in U.S. dollars.
A senior Telecoms Ministry official told Reuters at the time the terms had been revised to include more spectrum but no change to the licence payment conditions.
Egypt needs hard currency after burning through its foreign exchange reserves as political turmoil hit foreign investment and tourism since a 2011 uprising.
Telecom Egypt was alone in acquiring its 4G licence for 7.08 billion Egyptian pounds ($797 million) last month.
Analysts said while the telecom regulator could go for an international auction, both sides stand to gain more by resuming negotiations.
Telecom Egypt will have to share infrastructure with existing operators which, for their part, would be loath to see their market share diluted by the arrival of new players.
“We expect further negotiations to take place, since it is in favour of all parties involved,” Cairo-based Pharos Holding said in a note to clients.
To loosen its currency peg Egypt needs sustainable dollar inflows – REUTERS
Egypt is rebuilding its foreign reserves with the help of loans and aid, easing a shortage of dollars and preparing the way for a loosening of its fixed exchange rate.
But economists and bankers say that unless it finds a sustainable inflow of dollars the import-dependent country could soon find itself back at square one.
Egypt has struggled to earn dollars since a 2011 revolt drove away tourists and foreign investors. Its efforts to defend the pound against growing downward pressure drained reserves from $36 billion before the uprising to $16.6 billion in August — enough for just over three months of imports.
Investors and economists have long urged the central bank to devalue the pound to a realistic market rate and ease the dollar shortage, which has badly hurt business activity. An overvalued currency is hurting exports and stoking up the black market.
Central Bank Governor Tarek Amer has said he would consider floating the pound once reserves exceed $25 billion.
That level could be attained by the end of the year if Egypt receives the first $2.5 billion instalment of an International Monetary Fund loan agreed in August, finalizes its $3-5 billion eurobond issue and gets $5-6 billion in bilateral financing being negotiated with China and Gulf states.
Egypt has already received the first $1 billion tranche of a World Bank loan and expects a second $500 million tranche of an African Development Bank loan this year.
But bankers and analysts say debt obligations of $7-8 billion due this fiscal year and a backlog of unmet dollar requests estimated by bankers at $10-15 billion could quickly devour those new funds and expose the pound to renewed pressure.
To transition to a flexible exchange rate, they said, Egypt needs a sustainable inflow of dollars that has so far eluded it.
“This is the make or break for Egypt,” said Hany Farahat, economist at Cairo-based CI Capital. “We need to have a cash flow cycle of foreign currency, not just temporary windfall gains from financial support.”
Bankers point to the billions of dollars Egypt received from Gulf allies in 2013-14. The money was spent yet Egypt was still forced to seek IMF assistance as market imbalances grew.
The central bank, which has rationed dollars and prioritized essential food, medicine and raw materials, devalued the currency by 13 percent in March.
It said at the time it would pursue a more flexible exchange rate regime but held the pound steady anyway as the devaluation failed to restore confidence. The pound weakened to unprecedented levels on the black market in the ensuing months.
Egypt reached a preliminary agreement with the IMF last month for a three-year $12 billion loan program based on reforms aimed at cutting the deficit and directing monetary policy away from managing the exchange rate towards inflation-targetting.
The deal, which awaits final IMF approval, raised expectations of a hefty devaluation followed by a return to the managed floating regime in place before the revolt that ended Hosni Mubarak’s 30-year rule and ushered in a period of political and economic turbulence.
But Egypt’s regular sources of dollars have yet to recover. Tourism receipts halved to $3.77 billion in 2015/16 from the previous fiscal year, hit by last year’s attack on a Russian plane carrying holiday-makers from a Red Sea resort. Tourism receipts peaked before 2011 at $12.5 billion.
Foreign investors have not returned as the dollar shortage has forced the central bank to introduce capital controls, making it all-but-impossible to repatriate profits.
And though Egypt has embarked on a series of drastic trade measures, cutting the trade deficit by $7 billion this year, the country still suffers imbalances in dollar flows.
A flotation could lure back billions of dollars in remittances from expatriates who turned to the black market as the spread between the official exchange rate of 8.88 pounds to the dollar and the parallel rate widened to over 30 percent. But that cash is not enough to cover dollar demand.
“There is rising, pent-up demand that will eat up $10 billion,” said Sarah Saada, economist at HC Securities.
“The central bank should move the exchange rate but floating, if there is not enough liquidity coming in, will bring the central bank back to square zero.”
Bankers say the central bank will need a steep devaluation coupled with a series of aggressive interest rate increases to avoid dollarization and lure back foreign investors.
The central bank’s monetary policy committee will meet on Sept. 22 to discuss interest rates. The bank has raised key policy rates by 250 basis points this year. Bankers say much more is needed.
Foreign investment in Egyptian treasuries amounted to about $10 billion before the revolt. It is now under $1 billion.
“The central bank cannot float the pound before devaluing and hiking interest rates first to avoid a run on the banks in the absence of inflow of dollars,” one Cairo-based banker said.