CBE issues new decisions, controls to regulate import operations, cash deposits in foreign currencies

The Central Bank of Egypt (CBE) has relaxed restrictions on the use of foreign currencies for imports in a bid to ease the buildup of goods at ports, according to a document circulating among banks.

Among the key changes:

#1- You should now be able to open letters of credit to pay for goods stuck at port: Companies will now be able to cover imports using foreign currency that they held in their domestic bank accounts as of 19 September. This will allow companies to open letters of credit (L/Cs) (and, in some cases, to use documentary collection) to pay overseas suppliers and release goods that are stuck in customs.

#2- Parent companies with Egyptian subsidiaries can use FX balances: Parent companies can use foreign-currency deposits held as of 19 September to cover import costs for subsidiaries and vice versa.

#3- You’re lucky if you export to neighboring countries: From now on, companies can use foreign-currency revenues made from exporting to neighboring countries to pay for imports, provided they meet certain reporting requirements on both shipments and transactions. The document lists Libya, Syria, Sudan, Iraq, Yemen and Palestine.

#4- You can transfer in FX and use it to cover imports: From now on, Importers can use foreign-currency transfers from overseas partners to cover imports. FX including remittances, dividends or the proceeds of capital increases may be used. Subsidiaries can use loans from parent companies on the condition that the facilities are provided for no less than 12 months and that it is documented in both companies’ financial statements.

The rationale: The move is designed to undo some of the damage done by former central bank governor Tarek Amer’s decision earlier this year to require importers to use L/Cs to pay for goods. The move prevented businesses from accessing foreign-currency deposits, resulting in a pile-up at ports and causing shortages of industrial and consumer goods.

SOUND SMART- By setting clear channels through which businesses can get FX into their account to cover imports, the measures offer a bit of relief for everyone from manufacturers to distributors — but will still make it difficult for importers to source FX from outside the banking system. After spending years snuffing out the black market, policymakers are loath to see it return.

Reaction to the policy switch has been largely positive:

The measures “mend previous decisions [on imports] by the CBE, Ahmed El Zayat, a member of the Egyptian Businessmen Association, told CNBC Arabia (watch, runtime: 5:16). “Relying on L/Cs for imports saw us facing hurdles and challenges, leading to a slowdown in shipments’ release,” he said.

Manufacturers will now have access to raw materials and components and will be able to ramp up production, Alaa Ezz, Secretary-General of Federation of Egyptian Chambers of Commerce (FEDCOC), told Kelma Akhira’s Lamis El Hadidi (watch, runtime: 2:00). The inflationary pressures caused by shortages will begin to abate, helping prices to stabilize, he said.