Egypt Independent: Economy news

Egypt inflation set to climb to 10.9%, says IMF

Reuters — Tue, 21 May 2013 13:24:00 +0000

Inflation in Egypt is expected to climb to 10.9 percent this year, the highest level since 2010, the International Monetary Fund (IMF) said on Tuesday, more than it expected in April.

“Inflation is expected to rise in Egypt, Jordan, Morocco, and Tunisia, reflecting recent and planned subsidy cuts and, in some cases, pressure from monetization of fiscal deficits and supply shortages,” the IMF said in its regional outlook.

The fund expected Egypt’s inflation of 8.2 percent in 2013 in its half-yearly analysis of the world economy published last month.

In 2014, however, price pressures may be a bit lower than previously thought, as the IMF cut the country’s consumer price growth prediction to 11.6 percent from the 13.7 percent seen in April, the report showed.

The IMF did not change economic forecasts for other Middle East and North African oil importers and exporters in its new report, which closely follows the global outlook.

Egypt’s urban consumer inflation accelerated to 8.1 percent in the year to April, fuelled by rising food and energy prices and a struggling pound currency.

It is expected to climb further as the government pushes through tax hikes and subsidy cuts to secure a $4.8 billion loan from the IMF after two years of economic and political upheaval.

Negotiations with the IMF have stumbled repeatedly over government resistance to the austerity measures needed to get the fiscal deficit under control.

The IMF expects Egypt’s budget deficit to widen to 11.3 percent of its gross domestic product (GDP) in the fiscal year, which ends in June, from 10.7 percent in the previous year, but to narrow again to 8.7 percent in the fiscal year 2013-2014.

Egypt’s newly-appointed Investment Minister Yehya Hamed said earlier this month that the shortfall would be 11.5 percent of the GDP in the 2012-2013 year.

Official: reconciliation with Mubarak-era businessmen would attract more investment

Egypt Independent,MENA — Tue, 21 May 2013 11:26:00 +0000

Mohamed Omran, head of Egypt's stock market, described the government's decision to reach reconciliation settlements with businessmen as “important” and added that this step would encourage the flow of capital into Egypt.

Investments will restore confidence in the Egyptian economy, he said.

The government has reconciled with a number of businessmen, including Naguib Sawiris, from whom they received LE 7.1 billion. The public prosecution is also examining the possibility of a similar arrangement with Hussein Salem, a fugitive businessman, who would hand over 75 percent of his wealth.

In statements made at a conference organised by the Canadian Chamber of Commerce and titled "The future of the Egyptian economy and the stock market," Omran explained how security and political conditions affect the stock exchange. He also said that the stock market had been making gains before the 25 January revolution, despite the prevalence of corruption at that time.

Growth rates varied between six and seven percent from 2004 to 2011 and investment rates averaged US$ 45 billion. Investments increased by around US$ 13.1 billion in 2008, despite the emergence of the global economic crisis.

Omran expressed confidence in the Egyptian economy, declaring that it will survive the current crisis. He added that, with the exception of China, which has high growth rates despite a limitation on freedoms, economic studies demonstrate that there is a direct link between freedom and economic growth.

Growth rates were high before the revolution, reaching seven percent, even though freedoms were repressed and corruption was widespread. This reflected the strength of the Egyptian economy," Omran said.

However, growth rates dropped to 2.2 percent after the revolution, he said.

Investment Minister Yehia Hamed reportedly said on Sunday that the government would soon announce reconciliation settlements with some businessmen.

Safwan Thabet, the CEO of Juhayna Food Industries, told Al-Masry Al-Youm on Monday that Hamed had made his comments during a meeting with 10 Egyptian businessmen.

Thabet added that this meeting was one among many being held in the hope of alleviating Egypt’s economic crisis.

Egypt’s administration wants to reconcile with businessmen implicated in corruption cases in order to replenish its declining reserve of foreign currency.

The latest statistics from the Central Bank of Egypt estimate that the foreign currency reserve totaled $14.4 billion in April, or 60 percent less than the $36 billion figure calculated for late 2010, before the 25 January revolution that toppled President Hosni Mubarak.

Final Issue: How one Egyptian family struggles to make ends meet amid harsh conditions

Dalia Rabie ,Mohamad Adam — Thu, 25 Apr 2013 08:51:00 +0000

This piece was written for Egypt Independent's final weekly print edition, which was banned from going to press. We offer you our 50th and final edition here.

Mohamed Abdel Barr starts his day at 4 am, when he wakes up for the dawn prayer. He tends to his farm, feeds his cattle and then heads to school, where he works as a janitor.

He returns home at about 2 pm to have lunch with his family, after which he continues work on his farm, with his son Islam, until sunset.

Abdel Barr’s modest one-story house is a five-minute drive off the main highway of his village Wardan, nestled in a green landscape, where he lives with his wife and three sons.

With the deteriorating economic situation and constant increases in prices, Abdel Barr’s family makes do with their own resources, depending on the cattle and crops growing in their farm to cover the needs his paycheck can’t.

Wardan is located 50 kilometers from Cairo, and, in its serenity, stands in stark contrast to the city. The village, tucked on the border between Cairo and Monufiya, is also far removed from the capital’s turbulent political climate, leaving its residents focused mainly on their day-to-day well-being.

This alone proves to be a struggle as the village faces a scarcity in government and health services, as well as household utilities.

Abdel Barr’s family plans the finances of each month in advance, he explains, with both he and his wife calculating how much is needed to feed the family.

With a meager salary that is barely keeping up with price hikes, Abdel Barr and his family rely on their cattle and crops for most of their supplies.

The most common crops the family grows include corn, trefoil, beans and wheat. Abdel Barr’s wife, Om Ayman, explains that sometimes the family will grow a new crop at the expense of another, depending on their needs at the time.

They also rely on their cattle for milk, from which they make their own dairy products, such as cheese and ghee.

This leaves few products that Om Ayman needs to buy at the market.

She also shows off the bread she bakes in their homemade oven, which saves them the use of gas.

If their budget runs out one month, the family resorts to selling some of their produce in the market.

In an average month, Abdel Barr spends about LE100 on subsidized food, LE200 on meat, and another LE100 on other food items, leaving LE100–200 for emergencies “in case something happens to one of my children.”

“I get paid on the 26th of every month and God helps us get by,” he says.

With both Abdel Barr and his wife suffering from diabetes, their medication is provided through health insurance on a monthly basis.

He explains that every month, a Muslim Brotherhood medical convoy offers help for the underprivileged. While Abdel Barr has been paying for the medication for the past five years, he says he relied on the convoy last month who provided him with medication prescribed to him and his wife.

The family says the increasing cost of living really started to take its toll on them after the revolution, and especially over the past two or three months.

Egypt’s economic malaise is adding the heaviest burden on the already struggling poorer segments of society. Planned economic reforms, including tax rises and subsidy cuts, are looming threats of further difficulty to making ends meet. Many experts expect these policies to hit the poorest the hardest.

In a frenzied scramble to cut a hefty subsidy bill, Egypt unceremoniously raised the price of cooking gas earlier this month, for the first time in two decades. The price of cooking gas cylinders sold for domestic use was raised by 60 percent to LE8, and doubled to LE16 for commercial use from the price of LE8.

Abdel Barr talks about butane gas cylinders, which he buys for LE9 after they were sold for LE5. He explains that to be able to afford it, he has to do without some “luxury items, such as cigarettes or certain types of fruit.”

According to official statistics, the poverty rate in Egypt has increased, reaching an average of 25.5 percent for the year 2010/11. More than half of the rural areas’ population lives below the poverty line.

According to the Central Agency for Public Mobilization and Statistics, “extreme” poverty had decreased to 4.8 percent of the population in 2010–2011.

The poverty line in Egypt was at LE256 per person per month, or LE8.50 per day, while the “extreme” poverty line is calculated at LE171.50 per person per month, or LE5.70 per day.

For Abdel Barr’s family to survive, each member of the family contributes to daily chores.

Om Ayman wakes up with her husband and spends her day tending to the farm and house. She goes to the market at 7 am on Thursdays and Saturdays, to either buy or sell produce.

Their son Islam, who is still in school, manages to study and play football with his friends while still making time to help his parents around the farm, as well as making a little extra money by working as a cook catering to weddings in the village.

“Out of all my sons, he is the one I depend on the most,” boasts Abdel Barr.

With his other son, Ayman, enlisted in the military, Abdel Barr says some of his expenses have been alleviated since he manages to earn a salary working there as a cook.

When it comes to months such as Ramadan, when spending may increase, Om Ayman says the family stocks up on supplies two months in advance.

“We are aware of our financial situation and we spend accordingly,” she says.

Abdel Barr and his wife say their daily routine has swallowed any leisure time or activity. With barely any time to spend away from the farm, Abdel Barr and his wife’s only outings involve going to weddings.

They do maintain a family tradition, however, of having their two married daughters spend a day with them every week.

Abdel Barr says he is intent on “raising my children right so they don’t engage in any problems.” He laments the current turbulent political situation in Egypt, saying that while his village might be away from any violence, such scenes still affect him negatively.

He has no hopes in Egypt’s current politicians to improve the economic situation, saying, “The full don’t sympathize with the hungry.”

Egypt to issue schedule next month for gradual fuel subsidy cuts

Reuters — Wed, 24 Apr 2013 21:20:00 +0000

Egypt aims next month to issue a schedule of gradual rises in the subsidised prices various industries pay for fuel, to bring them near to world levels in four years, its trade and industry minister said.

A reduction in energy subsidies is widely seen as an important step towards allowing Egypt to secure a US$4.8 billion loan from the International Monetary Fund (IMF) to shore up its finances.

Egypt spends around a fifth of its budget on fuel subsidies, and the government is under pressure to reduce them to plug a deficit that has mushroomed since the popular uprising that ousted Hosni Mubarak in early 2011.

A growing population and a falling currency are expected to push the energy subsidy bill to more than LE120 billion in the financial year that ends in June.

Trade and Industry Minister Hatem Saleh said the government has been negotiating with industry leaders on the plan to increase prices.

"A very big dialogue is taking place with the Federation of Industries. I expect that within a week or two we will bring in the petroleum minister, and there will be a protocol so that the direction is clear for everyone," he said in an interview.

The protocol will set dates for increases in the price different industries pay for natural gas, diesel and fuel oil.

"Some industries will continue to be supported and will not reach world prices. They will be subsidised. These are labour-intensive industries and strategic industries that have an impact on poor people, such as basic food industries, basic commodities."

Reaching world levels

In February, the government raised the price of fuel oil, which is widely used in energy-intensive local industries, to LE1,500 per ton from a previous LE1,000.

It also increased prices of natural gas and diesel for some industries by 50 percent, industry sources said at the time.

"Within four years, we will approach world prices, especially energy intensive industries," Saleh told Reuters.

Egypt, which used to be a significant gas exporter, has struggled to pay for energy imports since the uprising drove away investors and tourists, two main sources of foreign currency.

It has paid for energy imports partly by drawing down foreign reserves, borrowing from foreign governments and delaying payments to oil companies operating in Egypt.

Foreign reserves dropped to a critical level of $13.4 billion in March - insufficient to cover three months of total imports.

The government has said it will start rationing state-subsidised motor fuel in the second half of 2014.

Farmers say they are concerned about a shortage of diesel to power irrigation pumps and tractors for the harvest season which may hinder this year's wheat crop.

Borsa struggles under heavy hand of government

Reuters — Wed, 24 Apr 2013 20:13:00 +0000

Egyptian fund manager Mohamed Ayad watched his clients lose money for months until he himself became a victim of the stock market's slump.

"I was fired with many others when trading volumes went down," said Ayad, a man in his 30s who worked for a securities firm in Cairo until last year. "I have been unable to find a new job as many other people working in the financial sector have also been laid off."

Over two years after Egypt's revolution ousted president Hosni Mubarak, the stock market continues to sag, plagued by sluggish trading turnover, a lack of new equity issuance and the reluctance of many big foreign investors to commit money.

The effect is being felt well beyond the community of finance professionals in Cairo and Alexandria — the market is viewed as a barometer for business confidence, and its weakness is preventing companies from using it to raise money.

Although Egypt's economy is struggling, the market's problems are as much political as economic. Investors feel the government is unsympathetic to them, and inclined to intervene in the market to obtain money or settle political scores.

Two official decisions this month have raised hopes that the government's approach to the market is changing, and that it can reach an accommodation with investors. But the decisions will need to be followed by the resolution of other long-running issues for confidence to return, analysts and investors say.

Public relations

After Mubarak's overthrow the Muslim Brotherhood, which took the lion's share of political power, mounted a public relations campaign to reassure investors that its Islamist ideology did not conflict with their desire to make money.

By late last year the campaign appeared to be working; the main stock index, which halved in the months after the revolution, had recovered almost two-thirds of those losses.

But early this year, a series of regulatory incidents hit the market. One was a clash between authorities and Orascom Construction Industries, the market's largest stock.

In late February the Egyptian Financial Supervisory Authority (EFSA) intervened to suspend a multi-billion dollar offer for Orascom's Amsterdam-listed affiliate OCI NV to buy out the shares of the Cairo-listed company. The EFSA said it wanted more information about the transaction, which could result in Orascom being delisted from Cairo.

Then in early March, the government slapped a travel ban on Orascom chief executive Nassef Sawiris and his father Onsi Sawiris — two of the country's most prominent businessmen — in a probe into alleged tax evasion by the company.

Later that month, authorities spooked the market by imposing a new tax covering investment gains on an offer by Qatar National Bank (QNB) to buy shares in National Societe Generale Bank (NSGB) — and telling shareholders about the tax only after they had agreed to sell.

Taken together, the incidents suggested the government's attitude to the market was not as benign as it had claimed. A fledgling recovery of foreign fund inflows into the market was halted; the index is down 11 percent from its January peak.

The market is still debating authorities' motives. One theory is that the government, with its budget deficit officially projected to rise to LE197.5 billion (US$28.5 billion) in the fiscal year that will start on July 1, is increasingly desperate to raise money — and that it sees the market as a tempting source of cash.

If this theory is right, the government may be disappointed. Much of the money it raises in the short term could be lost in the long term as investors become more reluctant to trade stocks and companies shy away from listing their shares on the market.

"They make less than $10 million, $9 million from this tax, a very small amount for making all this trouble," said Karim Abdelaziz, who manages an Egyptian share fund worth 1 billion pounds at Cairo-based al-Ahly Fund & Portfolio Management.

Another possibility is that as Brotherhood-backed President Mohamed Morsy consolidates power, his administration is becoming more eager to settle political scores with businessmen who prospered under the old regime. The Sawiris, and wealthy stock market investors, fall in that category.

In the long run, that strategy could also be counter-productive, by deterring the business investment which Egypt needs to create jobs and repair its economy - and which the Muslim Brotherhood will need to retain its political support.

Abdelaziz said the Orascom tax case could lead to a lengthy court battle, which would risk scaring off more investors who were already concerned about land sales that have been revoked by the government. Authorities accuse some real estate firms of having paid too little for land because of cosy relationships with officials in the Mubarak era.

A third theory is that officials making decisions affecting the stock market, some of them new to government after being excluded from power by Mubarak, are simply too inexperienced — or perhaps too distracted by other challenges — to make policies with investor confidence in mind.

Hani Helmy, chairman of El Shorouq Brokerage in Cairo, said the government was too busy dealing with street violence, fuel shortages and power cuts to focus on helping the stock market.

"I think since the revolution until now ... the stock exchange is not a priority to deal with — maybe we are number 10, number 20," he said.

Positive signs

There have been two signs this month that authorities' approach toward the market may be becoming more benign.

One was an announcement by the EFSA that the stock exchange would reinstate the buying and selling of individual stocks within the same trading session from the first week of May, in an effort to boost market volumes.

Buying and selling a stock in the same day has been banned since the revolution destabilised the market in February 2011. EFSA head Ashraf El Sharkawy said the resumption would increase the number of transactions by between 30 and 40 percent and help to alleviate "huge liquidity problems" on the exchange.

By itself, the opportunity to trade stocks more frequently will not restore investors' faith in the government — but it does suggest that within the government, there are still officials working to improve market conditions.

The second positive sign was a decision by parliament's economic and financial committee to scrap the tax on investment gains and return to investors the money already levied on the NSGB deal.

Abdullah Shahata, an aide to the finance minister, told Reuters that members of parliament had decided the tax would have a "negative effect on the investment climate in Egypt."

Daniel Broby, chief investment officer of British-based Silk Invest, said the tax saga should be seen as part of a learning curve in economic management for Mursi, and was not a bad omen for the market in the long run.

"The tax imposed on stock market gains ... is the sort of knee-jerk reaction that inexperienced politicians typically make and regret," he said.

At least two more things may need to happen for the market to feel comfortable with the government. One is a resolution of the Orascom tax dispute; Orascom said on Tuesday it was "in an advanced stage of negotiations with the Egyptian Tax Authority and will announce more details within the coming few days".

The other thing is for the government to give clearance for a merger of Cairo-listed EFG-Hermes, the Middle East's largest investment bank, with QInvest of Qatar. The deal was originally signed on 4 May last year; a clause in the agreement states it will lapse after 12 months if regulatory approval is not forthcoming.

The merger is politically sensitive in Egypt because both of EFG's chief executives, Hassan Heikal and Yasser al-Mallawany, are accused by authorities of illegal share dealings in relation to a 2007 transaction, along with the two sons of ousted Mubarak. EFG has said it will defend the CEOs.

Uncertainty over whether the deal will go ahead has weighed on EFG's share price and caused concern about Egypt's relations with Qatar, which has promised billions of dollars of badly needed financial aid to Cairo.

If such issues are resolved and confidence in the regulatory environment revives, Egypt's fast-growing population of 84 million could make its stock market attractive. Some institutions are already planning based on that assumption.

"We plan to open five to six branches in the provinces in the Nile Delta and Upper Egypt in the next three years to attract retail investors," said Hussein Choucri, chairman of local firm HC Securities & Investment, which manages assets worth almost LE5 billion in 14 investment funds.

Fund manager Helmy said a Muslim Brotherhood victory in this year's parliamentary elections, which are expected as early as October, might actually calm the market by giving parliament a mandate to take difficult economic decisions.

"People would accept the Brotherhood for the first two years, and judge them afterwards," he said.

Egypt wants bigger share in future oil, gas contracts

Reuters — Wed, 24 Apr 2013 19:02:00 +0000

Egypt will seek a bigger share of production in future oil and gas exploration contracts signed with foreign companies, its petroleum minister said in remarks published Wednesday.

In remarks to Al-Borsa newspaper, Osama Kamel said the new system would not be applied retroactively to existing contracts. He did not give a time frame or any further details.

"We will implement the new contracts system in tenders to be offered in the next period and not retroactively. The contracts that were recently concluded will not be subjected to it," he said.

An Egyptian engineer has filed a lawsuit demanding the freezing of oil exploration contracts signed with foreign firms, saying that they undermine Egyptian interests. An administrative court on Tuesday adjourned the case until 6 July.

The Petroleum Ministry last week awarded contracts for a minimum investment of $1.2 billion in eight oil and gas prospection projects in the Mediterranean Sea off its northern coast.

It awarded the contracts to firms including BP, Petroceltic International, Edison, Sea Dragon , Dana Gas, IEOC, a subsidiary of Italian oil major ENI and Pura Vida Energy.

IMF delegate claims Egypt loan to be finalized in May

MENA,Egypt Independent — Wed, 24 Apr 2013 09:54:00 +0000

Egypt and the International Monetary Fund have agreed on the main aspects of a US$4.8 billion loan and the deal will be ready for implementation by the end of May, predicted regional IMF representative Abdel Shakour Shaalan.

Shaalan, who represents Egypt, 12 Arab countries and the Maldives on the IMF board, made the remarks in Washington, DC, Tuesday to Egyptian reporters accompanying a delegation from the US Chamber of Commerce in Egypt.

However, analysts have painted a less optimistic picture.

An independent report by investment bank EFG Hermes obtained by Al-Masry Al-Youm earlier this week said the government's draft fiscal year 2013/2014 budget "calls for a highly optimistic scenario for economic growth and public revenues."

The report said planned tax reforms in May and subsidy reforms in July make up a timeline that is "highly unlikely."

"The government is not [in] a position to introduce these various inflationary reforms (sales and stamp taxes, reduced subsidies and VAT) in a time span of only eight months, in our view, especially considering that parliamentary elections are planned for late 2013. In addition to the social and political considerations, we see the timeline as unlikely from a purely administrative/logistical perspective," the report reads.

Officials have been saying since late last year that the loan deal was nearing completion, although IMF delegates left Cairo earlier this month with no agreement.

In December, an initial agreement failed after President Mohamed Morsy rescinded a package of tax increases.

Shaalan said Cairo could initially receive the first $2 billion of the loan, with the remainder paid in three phases. The proposed loan would be repaid over three years with a nominal interest rate of 1.1-1.5 percent.

Speaking about the loan conditions the IMF presented, Shaalan said, “It is the whole reform program the Egyptian government had introduced, especially in relation to lifting petroleum subsidies, which starts in the beginning of July, as well as decreasing the general budget’s deficit from 12 percent to 9 percent, liberating trade, preventing restrictions on exports and imports, fewer protectionist measures, and liberating the price of the Egyptian pound against the US dollar.”

Shaalan urged the Egyptian government to reform subsidy policies to ensure the aid reaches those most in need.

Concerning the IMF’s request for changes to Egypt’s sales tax brackets, Shalaan said both sides had already agreed to unify sales taxes and raise them closer to 10 percent.

Edited translation from MENA

Egypt sees 3.8% growth in next fiscal year

Reuters — Tue, 23 Apr 2013 17:18:00 +0000

Egypt said its economy would grow by 3.8 percent in the fiscal year starting in July as ministers outlined the 2013/14 budget to Parliament on Tuesday.

The forecast delivered by Planning Minister Ashraf al-Araby to the upper house of Parliament was slightly below his most recent prediction of 4 percent growth next year but well above the 2.5 percent the government expects in FY 2012/13.

Finance Minister Morsy Hegazy detailed proposed tax increases and spending cuts, including plans to save LE36.3 billion by rationing the distribution of subsidized fuel using smart cards.

Govt warns of high poverty, unemployment as budget released

Al-Masry Al-Youm — Tue, 23 Apr 2013 16:22:00 +0000

The government announced a LE820.1 billion budget for fiscal year 2013/2014 on Tuesday that will grow the state's deficit to nearly LE200 billion.

Officials warned of high poverty and unemployment risks, in addition to low investment and economic development rates as they presented the budget to the upper house of Parliament for review.

Finance Minister Morsy Hegazy told the Shura Council that anticipated revenue accounts for LE497.1 billion of funding, proceeds from financial asset acquisition LE11.2 billion and borrowing through securities and bonds LE311.7 billion.

The budget deficit is forecast to increase to LE197.5 billion from LE184.9 billion for the current fiscal year that ends in June.

“We aim to reduce the deficit to 5 percent of GDP by 2016,” Hegazy said. “This cannot be achieved without reform measures.”

He presented a gradual reform program of rationalizing energy subsidies, fighting tax evasion, levying a real estate tax, collecting fees for high-speed Internet services, resolving financial entanglements between the various ministries, restructuring wages and health insurance and expanding partnerships to finance investment projects.

Minister of Planning and International Cooperation Ashraf al-Araby said the government’s economic development plan is based on social justice.

“Fighting corruption is also our base for economic growth and effective planning,” he said.

He added that the decline in investment and economic growth rates in recent years is a challenge the government is facing.

He also said that Egypt's economic growth rate is now 2 percent and the trade deficit stands at US$32 billion, in part due to a drop in direct foreign investment to US$2 billion in FY2011/12.

“This means there was no increase in the per capita income during the past two years,” he said.

The country's unemployment rate is 13 percent, the minister added, putting the average duration of unemployment at three years for 40 percent of the unemployed.

The national poverty rate is above 25 percent and is a staggering 50 percent in Upper Egypt, according to the minister.

The government is also trying for the first time to engage in participatory planning, the minister claimed, although several groups complained Tuesday that the Cabinet had not made the budget publicly available in violation of Article 55 of the Constitution.

Fifteen parties and movements, including the Egyptian Center for Economic and Social Rights, the Hisham Mubarak Law Center, Dostour and the Popular Socialists Alliance parties, the April 6th Youth Movement, said in a joint statement that by failing to allow citizens to participate in making such decisions, the government is following in the footsteps of Mubarak's governments.

“We are involving political, intellectual, business and civil society forces in our planning so that it reflects the whole community,” Araby said Tuesday. “But we must resolve the current political and security situation in order to achieve our development goals.”

Edited translation from Al-Masry Al-Youm

Currency shortages hit Vodafone Egypt

Reuters — Tue, 23 Apr 2013 15:03:00 +0000

Foreign exchange shortages are making it harder for Vodafone's Egyptian business to buy network equipment and it has asked some suppliers to accept payment in Egyptian pounds, its local chief executive said.

Two years of economic turmoil since the overthrow of President Hosni Mubarak have wiped out most of the country’s foreign reserves and left some companies scrambling to secure currency on the black market at inflated rates.

The pound is trading between banks at around 6.9 to the dollar, but it was changing hands at between 7.7 and 7.85 on the parallel market earlier this month.

Hatem Dowidar said the currency constraints would not hit Vodafone Egypt's earnings this year, but would start to affect its longer-term growth if foreign currency remains scarce.

"So far we have prioritized things like roaming, SIM cards and top-up cards, but that's at the expense of network equipment and infrastructure," Dowidar told reporters during a visit to Dubai. "We have orders that we're not able to fulfill because we can't ensure that we have the currency to pay for it."

Vodafone Egypt is owned about 55 percent by Vodafone and around 45 percent by state-owned landline monopoly Telecom Egypt.

The company faces a challenge to buy currency in Egypt and transfer it to equipment suppliers, Dowidar said. Revenue sharing on international roaming deals was also problematic.

"We are talking to some of the manufacturers about working in Egyptian pounds ... given that our income is in Egyptian pounds," he said. "Most of the equipment is in dollars or euros."

For now, Vodafone Egypt had been obliged to "significantly" rein in its network improvement and expansion plans in the last three months, namely upgrading base stations to high-speed, third-generation networks.

"This isn't something that will affect us today or in the coming financial year in terms of results of the business, but if this currency situation continues for a very long time it will end up affecting long-term growth," Dowidar said.

He said Vodafone Egypt's operating costs were set to rise because of government plans to remove or reduce fuel subsidies.

Dowidar said Vodafone Egypt had factored those changes into its plans and was pushing through efficiency savings to compensate for them.

"It's not the running costs" that are the main problem for the company right now, "it's more the capital expenditure, equipment and investments in the network," he added.