Money transfers by Egyptians working abroad are planned to become a life jacket and quick solution for Egypt’s foreign exchange crisis. Egypt has been suffering from lack of foreign currency for years and the issue significantly increased in the past.
Appeals were published on social media networks asking Egyptians expatriates to sell the dollar in banks instead of in unofficial markets to stand by Egypt in overcoming this crisis.
Chairman and Managing Director-Executive of the Industrial Development and Workers Bank of Egypt (IDBE) El-Sayed El-Kosayer launched an appeal asking Egyptians working abroad to transfer money, even if it is 25% of their income through banks and get their value in EGP in return. El-Kosayer’s call aimed to support the country even if this process would last only for a transitional stage.
There are more than eight million Egyptians working abroad and therefore, if the call to transfer money was applied, it would lead to good results and deepen their spirit of patriotism, he said.
Egypt has directed a large part of its attention to Egyptians abroad after the 25 January Revolution in 2011. This attention was demonstrated by forming a ministry to watch over their interests, allocating them seats in parliament, and giving them the chance to practice their political rights. It is time to stand by their country in its hard times, El-Kosayer said.
Such requests were not the end of the issue. Daily News Egypt reported Tuesday the National Bank of Egypt (NBE) and Banque Misr are getting ready to offer dollar saving certificates to attract the savings of Egyptians working abroad. The final details about offering these saving certificates are now being reviewed to issue them in the upcoming days.
According to board member of both Suez Canal Bank and Arab Sudanese Bank Mohamed Abdel Aal, the transfers of Egyptians working abroad are considered one of the most important incomes of foreign exchange in Egypt. Egypt is one of the most prominent countries receiving transfers; it was ranked sixth in receiving transfers among middle-income countries over the past years.
According to previous statements by Governor of Central Bank of Egypt (CBE) Tarek Amer, the money transfers of Egyptians working abroad was approximately $19bn in 2015. Most of those transfers however were sold outside the banking sector, Abdel Aal said.
Egyptian banks, public banks in particular, play an important role in working to increase the flow of the money transfers. They do so by creating attracting mechanisms and products targeting people who transfer money. However they did not succeed in attracting the target amount of these transfers.
This failure occurred for many reasons, most importantly, banks stopping taking the part sold to them. They do not motivate people who transfer money to invest it in other investments in different currencies other than the dollar. These investments could make a good profit for them that could compensate the difference between the dollar’s price in banks and that in the unofficial market.
“Governmental bureaucracy is the major obstacle for Egyptians abroad who are interested in investing their savings in Egypt. Moreover the Arab Spring revolutions led to closing active and important transfers’ centres in some countries such as Libya and Iraq. As a consequence, it had a negative effect on the size of transfers of Egyptians as well,” Abdel Aal said.
The decline in oil prices and its consequences in terms of halting some projects in the oil-exporting countries led to laying off some Egyptian labourers, which also led to the decrease in the transfers’ value.
About 70% of Egyptians expatriates work in the Gulf area, 50% of which work in Saudi Arabia. These countries were highly affected by the decrease in oil prices.
Minister of Immigration and Egyptian Expatriate Affairs Nabila Makram told to Daily News Egypt in a special statement Monday that the ministry communicates with Amer about offering dollar saving schemes for Egyptians abroad. She will start an international tour to promote these new schemes and to call on Egyptians abroad to help their country face the dollar crisis. A Facebook page will be launched to communicate with Egyptian expatriates and provide them with all information about the certificates.
Makram communicated with Egyptians abroad and it was agreed on to set an investment mechanism that guarantees the rights of Egyptians abroad to attain their money in dollars, if they want, after the depositing period comes to an end.
Abdel Aal said the government’s and the banking sector’s efforts attracted the transfers of Egyptians abroad and that it was a good move and might help increase the volume of transfers sold in banks. However, it will not be able to attract them all due to the great difference between the official and unofficial dollar price, whether inside or outside Egypt. The only way to make people direct their transfers to banks is by decreasing or abolishing this difference.
Abdel Aal has been working in foreign exchange for more than 30 years. Previously he was deputy head of treasury for Egypt and South Africa at Arab Bank. He suggests a vision to achieve this goal: banks sign swap contracts with dollar owners, whether those in Egypt or Egyptians working abroad.
In accordance with these suggested contracts, banks would buy foreign exchange from people in the official price at buying time, while customers would have the right to take all or part of the money they sold from the bank, after a specific period to be determined.
With these suggested contracts, customers would have the right to obtain dollars they sold to banks or part of them at the same selling price or at the price of the time they want to obtain them again, whether this price is higher or lower than the selling price. Customers would also be able to renew the swap contracts for another period with the same conditions after updating dollar prices in accordance with the market’s circumstances at this time.
“Also in accordance with the contract , customers would have the right to withdraw all or part of the amount they sold to banks previously, whether in cash or by transferring it inside or outside Egypt without restrictions,” Abdel Aal said.
Banks can encourage dollar owners and people transferring money by enabling them to deposit Egyptian pounds liquidity they obtained from selling dollar through them in saving schemes with special interest rates.
He suggests CBE excludes liquidity that would be attracted through these schemes from the rates of legal reserves that obliges banks to deposit it. These rates are 10% of the banks’ total deposits and they do not take returns on them.
Implementing this suggestion requires banks to clarify it for dollar owners through different ways of promotion that suits all categories that own foreign exchange, Abdel Aal said.
The proposed system requires CBE’s approval for new product, its exception from the maximum limits for foreign Exchange long positions, and the negative liquidity gaps that may arise from those transactions.