Egypt charges tourist ships in dollars as greenback crisis spirals

CAIRO — The Egyptian government decided this month to charge foreign yachts and tourist ships, anchoring in Egyptian ports, in US dollars, instead of the Egyptian pound, for the first time. 

The decision, made by the minister of transport, went into effect the following day, on April 11.

Government officials pin their hopes on the new move to increase US dollar revenues. 

Ahmed al-Shami, maritime transport adviser for the Egyptian government, talked to Al-Monitor about the new measure. "This decision will reduce pressures on the Egyptian pound that caused it to lose much of its value against foreign currencies in the past period," he said.

He added that the decision also aims to make it easy for tourist ships to pay for the ports.

Egypt has been trying to become a magnet for tourist ships and yachts in its bid to increase its foreign currency revenues. Egypt's 23 tourist ports and marinas welcomed some 675,000 visitors in 2019. The requirement for tourist ships to pay in US dollars comes as the populous country continues to suffer from an acute shortage of its currency and works tooth and nail to shore up its greenback revenues.

Egypt's foreign currency reserves, especially US dollars, have been under intense pressure with Russia’s war on Ukraine dragging on.

Apart from negatively affecting Egypt's tourism sector, the war in Ukraine also caused commodity prices in the international market to rise sharply, making it necessary for food import-dependent Egypt to pay more for its imports.

Declining revenues from the tourism sector compounded a marked drop in remittances from millions of Egyptians working in other countries, especially in the Gulf, with black market traders vying with the nation's banks for these remittances, offering a higher price for the greenbacks.

One US dollar is sold in the black market for over 35 Egyptian pounds, even as the official exchange rate at the banks is less than 31 pounds, giving leverage to the parallel market in the race for Egyptian workers' remittances, the highest source of foreign currency for Egypt. In 2021, remittances brought in $31.5 billion, up from $29 billion in 2020.

The failure of the official banking system to beat out the black market and attract greenbacks resulted in another failure, namely the inability of the banks to offer the necessary greenbacks for importers who cannot pay for the release of shipments of goods at the nation's ports, causing a backlog of imports at the ports.

Ahmed Sheeha, former head of the Importers Section at the Federation of Egyptian Chambers of Commerce, told Al-Monitor the government is making an effort to improve the situation at the ports. "The government works hard to end backlogs across the ports, but things aren’t easy. These backlogs are made of essential goods, including production requirements, animal fodder, spare parts and medicines," he said.

Exporters, he added, find it hard to secure the necessary dollars for the release of shipments from the ports.

Nevertheless, Egypt is taking a series of measures to bring in the required amounts of dollars to secure its import needs and honor its international obligations, charging tourist ships in US dollars being one of these measures.

The government has already received the first tranche of a $3 billion loan from the International Monetary Fund (IMF) that was approved in October, and the fund is about to make its first review of Egypt's commitment to the loan program before it hands out the second tranche of the loan, even as some problems hinder the new review.

As per the agreement with the IMF, the Central Bank of Egypt abdicated Egypt's decadesold managed exchange rate regime in March 2022 and allowed the Egyptian pound to partially float freely.

The central bank has depreciated the pound three times since March 2022, even as the IMF expects a total floatation of the national currency to allow for the flow of foreign direct investments.

The Egyptian president also formed the Supreme Investment Council April 14, a body that will be headed by the president, to solve problems hindering foreign investments and respond to the needs of the business community. 

Egypt has so far let some of its state-owned assets into Arab hands, including petrochemical companies and banks. For instance, in 2022 Abu Dhabi Ports Group purchased for $140 million the majority of stakes in Egypt's Transmar International Shipping Company and Transcargo International. In August, the Saudi sovereign wealth fund acquired stakes in several Egyptian companies, including Abu Qir Fertilizers and Chemical Industries Company and Alexandria Container and Cargo Handling Company.

The government also launched an initiative in October to absolve Egyptians working in other countries who want to bring in their vehicles, of customs duties or taxes, provided that they make a five-year bank deposit (without interest) in foreign currency.

Some economists commend these measures, expressing hopes that they will put an end to current US currency shortages.

"Some of the initiatives launched in the past period will hopefully bear fruit, but it is important to keep following them up to ensure that they are achieving their goals," Mahmud Sami, member of the Economic Committee in the Egyptian Senate, told Al-Monitor. 

Nevertheless, the same measures meet objection from other economists who blame some of these initiatives in failing to achieve their goal of increasing foreign currency revenues.

The sale of state assets to Arab countries, for example, faces objection, with some people lamenting the sale of money-making projects that could have contributed to solving Egypt's economic problems, if they had continued to stay under state ownership.

Ehab al-Dessouqi, economics professor at the state-run Sadat Academy for Management Sciences talked to Al-Monitor about state ownership versus privatization. "Some of the companies and projects that bring in foreign currency revenues need to stay within state ownership, not sold," he said.

"The privatization program needs to be reconsidered, especially in the case of money-making companies," he added. 

There is an urgent need, he noted, for increasing production and exports, instead of selling state assets. 

Another economist suggested the introduction of preferential Egyptian pound exchange rates for US dollar transfers by Egyptians working in other countries. 

Egyptians working abroad are the highest source of foreign currency for their country, even higher than the Suez Canal and the tourism sector.

However, these remittances have recently dipped. In the first eight months of 2022, the remittances reached $20.9 billion, down from $21.4 billion in the same period in 2021.

This drop in the remittances makes moves for attracting US dollars, including the latest decision to charge tourist ships in dollars, acquire greater urgency. 

The decision, specialists say, can bring in a sizeable amount of dollars, especially with the tourism sector showing signs of recovery from the initial shocks caused by the war in Ukraine.

"The decision acquires its importance from current economic difficulties and dollar shortages," independent tourism expert Magdi Selim told Al-Monitor. "It will contribute to increasing US dollar revenues, given the current surge in tourist arrivals."

The number of tourists visiting the southern cities of Luxor and Aswan increased by 22% in the first quarter of this year. Overall, Egypt expects to receive 15 million tourists in 2023, up from 11.7 million tourists in 2022 and 8 million tourists in 2021.