Egyptian crisis breeds unexpected winners
CAIRO - Reuters
An Egyptian man gets his hair done at a makeshift barber shop nearby a sit-in by members of Egypt’s Muslim Brotherhood in front of a Cairo mosque.Egypt’s smaller companies have struggled since the uprising that pushed aside Hosni Mubarak in 2011. But in a few corners of the economy, businesses are doing just fine.
Against a background of unrest, access to credit and foreign currency has dried up. Government officials have stopped taking decisions and security has all but disappeared from the streets.
Factories and workshops have been hit by interruptions in subsidised diesel and gasoline and by regular power outages as the government runs low on the dollars it needs to import petroleum products from abroad.
Angry workers routinely shut down plants and block ports.
Gross domestic product grew at an annualised rate of just 2.3 percent in the nine months to end-March, well below the 6 percent a year thought necessary to absorb new entrants to the labour force.
But for many in the food production, building supply and other businesses, even though the economy may have slowed, people keep demanding services.
“Last year we had in sales volume terms and in value terms our best-ever year in the Egyptian market, and this year will be even better,” said Taher Gargour, managing director of sanitary ware and tile-maker Lecico Egypt. At a time when mainstream contractors were suffering for lack of business, Lecico has been supplying toilets and tiles to small builders who were taking advantage of a breakdown in government zoning rules.
“Egypt’s currency problem makes it harder to import,” Hussien Mansour, chief executive of Aller Aqua Egypt said. “The diesel shortage is hurting production. Wages are rising and security on roads has become a problem.”
As the government borrows to finance a steadily growing budget deficit, private borrowers are being crowded out.
Banks are giving fewer loans, demanding more rigorous guarantees and setting more conditions.
They now typically charge 18 percent interest on loans, plus administrative costs and fees, Mansour said.
The lack of access to credit means businesses have to prepay with cash, which ties up capital and is painful for companies whose products have an expiry date.
“The collection time that used to take a week can now take two months. This is affecting very big companies as well as small companies,” he said.
Hammam Elabd, chief executive of Western Mechatronics, a maker of industrial scales, conveyor belts and other factory products, also says credit has been a concern.
Before the 2011 uprising, smaller companies were rarely asked to provide letters of guarantee when buying goods on instalment, but now it is standard.
And before, the bank would typically demand a down payment of 30 to 40 percent. Now they are asking for 100 percent, Elabd said.
The government tightened access to foreign currency after a run on the pound in December, with priority given to importers of commodities defined as essential, such as basic foods.
But even importers of these commodities who were eligible for currency at the official rate have had to buy some of their currency on the black market, said Mansour of Aqua Aller.