<p style="text-align: justify;">In this week's edition we take a look at the reasons and implications behind the abortion of the United Bank sale, expectations for another EGP depreciation, and recommendations to revive the domestic poultry industry</p>
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<h2><span style="color: rgb(6, 71, 137);"><strong>Talks over Purchase of United Bank Stalled, Expectations of Another Depreciation of the Pound</strong></span></h2>
<p dir="ltr" style="text-align: justify;">Talks between Saudi Arabia and Egypt over the purchase of United Bank have&nbsp;<a href="https://www.bloomberg.com/news/articles/2023-02-22/saudi-talks-on-buying-egypt-s-united-bank-stall-over-pound">stalled</a>&nbsp;due to a dispute over how to evaluate the multimillion-dollar deal as the Egyptian government works to raise much-needed funding. The Saudi sovereign Public Investment Fund (PIF) began negotiations with Egyptian authorities last year to buy the 65-branch bank, which is 99.9% owned by the Central Bank of Egypt. The CBE&rsquo;s ownership of the bank was supposed to be temporary, as the role of the central bank to be a supervisor and a regulator of the banking system.</p>
<h3 dir="ltr"><strong>Why did the negotiations fail?</strong></h3>
<p dir="ltr" style="text-align: justify;">While Saudi Arabia&rsquo;s PIF wanted to value the bank in Egyptian pounds, with the total value of the sale in dollars to be determined based on the prevailing exchange rate at the conclusion of the deal, the CBE preferred a dollar-based valuation from the beginning. It is believed that the suspension of the deal is what prompted Egypt to resort to the issuance of sovereign sukuk with a yield of 11% in mid-February, as the country scrambled to <a href="https://www.reuters.com/markets/rates-bonds/egypt-raise-15-billion-with-debut-sukuk-11-yield-2023-02-21/">repay</a>&nbsp;$1.25 billion in Eurobonds that matured later the same month.&nbsp;</p>
<h3 dir="ltr"><strong>What is the Gulf waiting for to close the deal?</strong></h3>
<p dir="ltr" style="text-align: justify;">As Egypt faces an unprecedented financing gap of $17 billion, Gulf states, including Saudi Arabia &mdash; in line with the IMF agreement &mdash; pledged at the end of 2022 to inject more than $10 billion in investments into Egypt&rsquo;s economy, but Egypt has received only a fraction of the promised funds so far. <a href="https://www.alquds.co.uk/%D9%85%D8%B5%D8%AF%D8%B1%D8%A7%D9%86-%D8%A7%D9%84%D8%B3%D8%B9%D9%88%D8%AF%D9%8A%D8%A9-%D8%AA%D8%B9%D9%84%D9%82-%D8%AE%D8%B7%D8%A9-%D9%84%D8%A7%D8%B3%D8%AA%D8%AD%D9%88%D8%A7%D8%B0-%D8%B5%D9%86%D8%AF/">&nbsp;</a></p>
<p dir="ltr" style="text-align: justify;">Gulf states have been&nbsp;<a href="https://www.bloomberg.com/news/articles/2023-02-24/gulf-states-play-hardball-over-sending-billions-to-rescue-egypt?srnd=premium-europe&amp;fbclid=IwAR3D1ZTDdICrsN-3811uyykdQNcEXeAJKJLjO0WCnynV-91_fadWBlSsazA#xj4y7vzkg">slow</a>&nbsp;to deliver for several reasons. Most importantly, the value of the Egyptian pound has yet to stabilize and investors are reluctant to inject more money into bonds or shares of companies as long as they cannot rule out another currency devaluation. The Egyptian government, too, has not yet followed through on key economic reforms promised to the IMF as a condition of the recent loan package, including limiting state and military involvement in the economy, holding off dollar expenditure on megaprojects, and ensuring greater transparency and governance over the finances of state-owned and unlisted companies.</p>
<h3 dir="ltr"><strong>An anticipated currency devaluation</strong></h3>
<p dir="ltr" style="text-align: justify;">The United Bank news coincides with Societe Generale&rsquo;s <a href="https://www.bloomberg.com/news/articles/2023-02-24/egypt-likely-to-devalue-currency-again-societe-generale-says">forecast</a>&nbsp;on February 24, 2023 that the Egyptian pound will be discounted an additional 10% before the end of March 2023, bringing the US dollar exchange rate to EGP34. Heavily indebted Egypt&nbsp; needs a cheaper currency given the sizable current account deficit and dollar shortages, the report said. Although the pound lost half its value last year after three devaluations, it has not yet reached short-term equilibrium, as the CBE has not taken decisive measures to tighten monetary policies, curb inflation, and bring foreign investors back to the market, which has in turn increased pressure on the pound. The CBE&nbsp;<a href="https://www.reuters.com/markets/rates-bonds/egypts-central-bank-leaves-key-interest-rates-unchanged-2023-02-02/">kept</a>&nbsp;interest rates unchanged at its first meeting of 2023, surprising analysts and investors alike.</p>
<h3 dir="ltr"><strong>What is needed for successful IPOs?</strong></h3>
<p dir="ltr" style="text-align: justify;">Continued fluctuations in the exchange rate make it difficult to appraise assets, experts say, which means that some initial public offerings (IPOs) may take longer than anticipated. This raises questions about the timing and goal of IPOs: is the aim to increase private sector participation, as the government claims, or simply to bring in funds to bridge the financing gap and service the rapidly-growing external debt? Aborted asset sales have become both a cause and a consequence of a weak pound, and increased pressure on the local currency carries a subsequent risk of unfair valuation of the assets offered.&nbsp;</p>
<p dir="ltr" style="text-align: justify;">Experts and investors believe that the success of the massive IPO program depends on specific measures related to monetary policy, government transparency, and the restructuring of the economic system. To better control pound fluctuations, financial analysts recommend that the CBE raises interest rates to withdraw domestic liquidity from the market, which would in turn reduce inflation and lower demand for local currency. As for asset valuation, the government must be fully transparent about the assets and liabilities of the companies offered; listing firms on the stock exchange instead of offering them privately to selected investors will ensure the best valuation and the highest return. The success of these recommendations depends on the government&rsquo;s ability to restructure the current economic system, wean itself of its reliance on debt recycling, review spending priorities, and activate channels of political participation.</p>
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<h2><span style="color: rgb(6, 71, 137);"><strong>Can the Domestic Poultry Industry Be Revived?&nbsp;</strong></span></h2>
<p dir="ltr" style="text-align: justify;">Poultry prices in Egypt rose an unprecedented&nbsp;<a href="https://www.cnn.com/2023/01/18/business/egypt-economy-chicken-feet-mime-intl/index.html">60%</a>&nbsp;over the past year due to the decline in the value of the pound and the rise in food prices globally in the wake of the Russian-Ukrainian war. Import restrictions on feed imposed to save hard currency and price gouging by poultry breeders and brokers exacerbated the problem.</p>
<p dir="ltr" style="text-align: justify;">A 40% decline in poultry production and the exit of many small breeders from the market has left a domestic shortfall of 70,000 tons per month. There are about&nbsp;<a href="https://dailynewsegypt.com/2022/12/13/egypts-poultry-industry-stuck-between-a-rock-and-hard-place/">38,000</a>&nbsp;poultry-related business establishments in Egypt (farms, feed factories, slaughterhouses, outlets selling veterinary medicines and vaccines) that employ some 4 million workers, with investments estimated at more than EGP100 billion.</p>
<p dir="ltr" style="text-align: justify;">Roughly 70&ndash;75% of Egypt&rsquo;s poultry sector depends on industrial chicken feed, especially maize and soybeans, whose prices have&nbsp;<a href="https://www.thenationalnews.com/mena/2023/01/10/anger-in-egypt-as-chicken-prices-soar-after-feed-costs-rise/">quadrupled</a>&nbsp;over the past 12 months due to global inflation, frequent devaluations of the pound, and import restrictions that have delayed goods at ports.</p>
<p dir="ltr" style="text-align: justify;">Although global food and cereal prices have fallen to pre-war rates according to&nbsp;<a href="https://www.fao.org/worldfoodsituation/foodpricesindex/en/">FAO data</a>, they are still at a record high in Egypt, reflecting a major dysfunction in the local poultry industry. One of the most important factors for this imbalance is the government&rsquo;s dependence on a small group of importers and businessmen exclusively allowed to enter tenders for supply commodities and basic production inputs in the grain market.</p>
<h3 dir="ltr"><strong>Brazilian poultry imports as a solution?</strong></h3>
<p dir="ltr" style="text-align: justify;">In an effort to bring down prices and increase the supply of poultry, the Ministry of Supply <a href="https://egyptindependent.com/supply-ministry-to-provide-poultry-at-its-outlets-at-le65-per-kilo/">announced</a>&nbsp;in late February 2023 the import of 25,000 tons of frozen Brazilian poultry. The imports are sold through armed forces&rsquo; outlets at prices 25% lower than local supply, which means more money flowing out of the private sector, accelerating its contraction.</p>
<p dir="ltr" style="text-align: justify;">While imports might temporarily solve the shortage for consumers according to government claims, they will negatively impact the domestic sector, according to poultry producers. They fear that the import strategy will hinder efforts to bring stalled farms &ndash; some 50% of all poultry farms &ndash; back into production. They also question the wisdom of using hard currency to import poultry rather than to clear the feed still stuck in ports.</p>
<p dir="ltr" style="text-align: justify;">Some two million workers in the poultry sector have been laid off amid the current crisis, as most small breeders, who constitute about 70% of the productive force, have exited the market. The sector will likely shed more workers if the government continues to ease the crisis by importing poultry instead of addressing problems in the local industry.</p>
<h3 dir="ltr"><strong>What is needed to reinvigorate the domestic poultry industry?</strong></h3>
<p dir="ltr" style="text-align: justify;">The government took various actions in past weeks to alleviate the crisis and help the local poultry sector, most importantly:<br>1. Requiring a number of big breeders to supply 1,000 tons of live chicken per day at cost; the poultry will be sold at wholesale markets and outlets managed by the Ministry of Supply in cooperation with military and police companies at discounts of 20&ndash;30%. While this will plug the immediate deficit, it is not a sustainable solution over the long term and does not tend to small breeders, who make up the bulk of the industry.<br>2. Pledging to release larger quantities of feed and exempt poultry farms from the real estate tax for three years to reduce the burden on breeders. Though helpful, this decision comes after months of complaints and warnings from workers in the poultry industry about the consequences of the mounting crisis.<br>3. Attempting to hammer out an agreement between the Ministries of Agriculture and Supply to accept poultry supplies from local farms. Despite the importance of this move, either party might back out of the agreement due to a pricing dispute, as has happened in the past.&nbsp;</p>
<p dir="ltr" style="text-align: justify;">While useful in the short term, these fragmented actions were not part of a clearly articulated strategy to manage the long-standing crisis and so are likely to be ineffective at resolving the roots of the crisis.&nbsp;</p>
<p dir="ltr" style="text-align: justify;">The government and relevant ministries should mount a coordinated effort to revive the local poultry industry before it is too late, experts say, recommending a set of measures over three different time periods:<br><br><strong>Immediate actions: </strong>In addition to imports &ndash; which must be limited and temporary, solely to plug the current gap &ndash; the government should allocate part of the current budget to support small poultry producers and reintegrate them into the market, to jumpstart the domestic production cycle, which typically lasts 8-9 months. Specific measures include providing incentives for production, such as technological and material support, facilitating the establishment of farms by offering breeders low-interest loans, and setting clear pricing and regularly tracking of the quantities of feed released. At the same time, government regulatory bodies must take action to control market prices, in a way that supports governance and reduces monopolistic practices, while involving civil society, unions, and municipalities in efforts to confront the crisis.</p>
<p dir="ltr"><strong>Medium-term actions:</strong> Dr. Gamal Siam, professor of agricultural economics at Cairo University, believes that the Egyptian government should develop alternative sources of hard currency and use it to facilitate the regular clearance of fodder piled up in ports, especially since fodder and production inputs are priorities to maintain food security. In parallel, the government should begin to develop and implement a plan to maintain a strategic stock of these key resources in times of overproduction &ndash; like last year &ndash; in anticipation of future economic crises.</p>
<p dir="ltr" style="text-align: justify;"><strong>Long-term actions: </strong>Experts believe that the government should foster the local feed industry by developing and localizing technology, learning from the experiences of countries that have reduced the cost of production, increasing the acreage dedicated to growing feed, and minimizing the impact of global turmoil by motivating landowners to cultivate feed for a fee. Most poultry farms are small and medium-sized, Dr. Siam said, creating linkages between them in poultry producer associations will therefore make them more robust, strengthen the industry overall, and create an institutional framework that ensures a balance between all stakeholders.</p>
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<p style="text-align: justify;"><em>"Adasa" is a weekly policy digest by Alternative Policy Solutions. "Adasa" provides an analysis of a select number of policy developments and their effect on inclusive development and socioeconomic change &nbsp;</em></p>

عدسة

Adasa

زراعة

Agriculture

الغذاء والتغذية

Food and Nutrition

السياسة النقدية

Monetary Policy

السياسات الاقتصادية

Economic Policies

انخفاض آخر للجنيه؟ وهل يمكن إحياء صناعة الدواجن المحلية؟

Another EGP Devaluation? and Can the Poultry Industry be Revived?

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