Egypt is offering shippers using the Suez Canal discounted fees as the government scrambles to raise US$6 billion it needs to unlock an IMF loan twice the size.
Cairo is negotiating a $12bn bailout package, but that is dependent on Egypt devaluing its currency and reducing subsidies as well as coming up with an additional $6bn, mostly from allies.
“If you pay three years in advance, you will take a 3 per cent discount, if you pay five years in advance, you’ll get a 5 per cent discount,” Mohab Mameesh, the chairman and managing director of the Suez Canal Authority, said on the sidelines of the Dubai Maritime Summit yesterday. “Because we need the hard currency in advance. It will push the economy.” The authority collects it fees in US dollars.
Mr Mameesh said that he was still waiting to hear from shippers including Maersk, CMA CGM, Mediterranean Shipping Company and Hapag-Lloyd on the matter.
At the same time, the former commander of the Egyptian navy said that he expected an increase in revenues from the canal as oil prices rise. Low oil prices make it cheaper for shippers to go around the Cape of Africa and avoid paying the Suez Canal toll, while it works in reverse when oil prices are high.
The Arab world’s most populous nation is in the midst of a currency crisis that has been escalating since a popular uprising in 2011 triggered political and economic chaos.
Its economy is highly dependent on hard currency the government gets from the Suez Canal as well as tourism and remittances from abroad.
All these sources have been choked in recent years as global trade slows, low oil prices reduce the amount Egyptians working in the Arabian Gulf can send home and tourists shun the country in the aftermath of the downing of a Russian passenger airline over the Sinai last year that killed all aboard.
Efforts to boost dollar intake, including extending the size of the canal in an US$8 billion project to allow more ships to enter, has not resulted in more revenues and the country’s finances in recent years have been propped up by aid from Arabian Gulf nations.
In August last year, the first phase of the canal was inaugurated, but revenues dropped 5.3 per cent to $5.175 billion in 2015 as global trade slowed and more ships used the longer route around Africa. Mr Mameesh said the authority was targeting annual revenues of $13bn by 2023.
Egypt’s government relies heavily on those inflows of hard currency to import energy and food that it sells at subsidised rates. Businesses are also in need of foreign currency to import raw materials and machinery.
The value of the Egyptian pound has been tightly controlled by the central bank over the past five years as the government intensifies efforts to curtail imports while using its foreign currency reserves to defend the Egyptian pound.
As a result of these measures, hard currency has become even harder to find, pushing up the value of the US dollar on the black market.
The Egyptian central bank devalued the pound by 13 per cent in March, but that failed to kill the trade of the black market.
The dollar currently trades at almost double the official rate of 8.85 Egyptian pounds on the black market.
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