Foreign currency shortage puts Egypt’s wheat supply at risk

Some 800,000 tons of wheat, nearly half of the quantity that Egypt imports each month, is currently trapped in the country’s ports. “Warehouses are completely jammed and new shipments continue to arrive,” former head of the mills division at Federation of Egyptian Industries, Walid Diab, told Mada Masr.

Wheat shipments began to pile up in September, causing the local cost of wheat to leap and as a result, industry figures say that around 80 percent of mills producing flour for the private sector have ground to a halt. 

At the heart of the matter is a major deficit of foreign currency liquidity that has affected an array of industrial sectors and financial operations since the beginning of the year, and which experts and recent data say is only escalating.  

The situation at the port is exacerbated every day, a source in a major grain importing company told Mada Masr on condition of anonymity.

A knock-on impact is disrupting operations at businesses that rely on imported wheat, threatening the supply of wheat-derived food goods on the market, such as bread, pasta and fodder for animals. At the end of September, the grains division of the Federation of Egyptian Industries submitted a letter to the ministries of supply and of trade and industry and to the central bank, of which Mada Masr viewed a copy, to inform them that 80 percent of private-sector mills had ceased operations due to the low quantity of wheat available on the market. Some have laid off staff as well, a source working in the mills sector told Mada Masr on condition of anonymity. 

The deficit means that wheat prices are soaring on the local market, several importers told Mada Masr, with costs higher than LE9,500 per ton on average, significantly higher than the global price of around LE7,120 per ton. 

“I bought high-quality Australian wheat two weeks ago at over LE10,000 per ton, a very exaggerated rate for imported wheat,” Diab said.

Pasta is likely to get more expensive and production is likely to go down, said Wagdy al-Mashad, a member of the grain industry chamber and the owner of a pasta company.

And the government is yet to present a solution to the issue. The House of Representatives Industry Committee said it would summon the ministers of industry, planning and finance to attend a session next week to explore resolutions to the crisis of the goods held in the ports, including restructuring the available foreign exchange resources according to the priorities and needs of the market.

“There’s only one solution for this crisis,” said Diab. “The central bank must immediately allocate existing foreign currency resources to Egyptian banks and allocate it to releasing goods stacked up at the ports, with priority for food, drugs and medical supplies.”

Two other sources in the industry federation’s grain sector said that the dollar shortage had worsened at the banks during recent weeks, causing the issues for wheat and other goods to escalate accordingly. 

Since early this year, a shortage of dollars has hampered import operations across the market. New import rules introduced by the Central Bank of Egypt in February required importers to deposit the full cost of each import shipment up front at the banks before gaining bank approval to import their goods. Once the goods arrive, the cost must be converted into foreign currency for transfer to the exporter. But banks have been unable to supply the foreign currency to do so.

While the new rules would have posed less of a challenge last year, when the country’s net foreign assets stood in September, for example, at a surplus of LE248 billion, global uncertainty in the wake of Russia’s invasion of Ukraine propelled foreign capital flight from Egypt’s bond market, draining US$22 billion from the country’s foreign reserve balance over the first six months of 2022.

And according to central bank data released on Monday, the country’s net foreign assets — the volume of foreign currency assets owned by banks minus their obligations in foreign currency — fell by five percent in August, reaching a deficit of approximately $20 billion, or LE385 billion.

A deepening deficit will continue to grow as has been expected for a long time, former assistant deputy central bank governor Hany Genena told Mada Masr.

With the crisis unresolved, “we risk losing the trust of wheat exporters the more we’re unable to pay them back on time,” Diab stressed, adding that a growing concern among wheat importers now is that they will struggle with gaining importers' trust for future operations. 

“Today we have wheat that’s locked up at the ports. Tomorrow we may not have any at all.”