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Analysis

Egypt, Russia find opportunity in crisis

Analysts say boosting trade between Russia and Egypt in the ruble and the pound is a win for both countries amid Western sanctions on Moscow and the dollar crunch in Egypt.
Egyptian Foreign Minister Sameh Shokry (R) and his Russian counterpart Sergei Lavrov shake hands during a joint press conference in the capital Cairo, on July 24, 2022. - Russia's top diplomat will address the Arab League at its Cairo headquarters, the organisation said, days after Russia took part in a summit hosted by Iran, a regional rival of some Arab states.  (Photo by KHALED DESOUKI/AFP via Getty Images)

CAIRO — Egypt and Russia are seeking measures to boost economic cooperation and increase bilateral trade, creating win-win business opportunities for investors in both countries. As Western sanctions against Moscow escalate, Russian-based companies are looking for alternative markets in Africa, including Egypt.

Egypt licensed 34 Russian firms last month to export seafood products to the country as Cairo sources affordable foodstuffs amid a hard currency squeeze.

Egypt started to import Russian cooking oil, which is cheaper than Indonesian and Malaysian oils. In an effort to facilitate such transactions, the Bank of Russia listed the Egyptian pound in January among the nine currencies it sets official exchange rates for.

Analysts say trade between Russia and Egypt in the ruble and the Egyptian pound is a win-win for both countries given the Western sanctions on Moscow and the dollar crunch in Egypt.

Andrey Sumin, a Russia-based financial markets professional, told Al-Monitor that both countries encounter difficulties in accessing and settling deals in dollars. "One possible solution is to trade in national currencies,” he said.

Trade between Egypt and Russia totaled $17.8 billion over the past five years, according to the Central Bank of Egypt. Egypt’s exports to Russia rose by 21% to $544.1 million in the January-November 2022 period, up from $449.4 million during the same period in 2021, according to data from the state-run Central Agency for Public Mobilization and Statistics (CAPMAS).

Egyptian Foreign Minister Sameh Shoukry said on Jan. 31 that wheat imports are a cornerstone in the relationship between Cairo and Moscow and that the most populous Arab country is the world’s top grain importer. Shoukry said trade between the two countries hit $6 billion in 2022.

Sumin said trading in national currencies would be easier for local pricing and accounting for contracts in rubles and Egyptian pounds.

“It will allow quick money transfers … without currency conversion commissions. There will be no additional control and limitations for third party currency transfers,” he explained.

Russia was the fifth-largest exporter to Egypt in the January-November 2022 period at $3.7 billion, according to CAPMAS. In addition to grain, Egypt’s imports from Russia also include iron, steel, copper, wood, mineral fuel, electrical machinery and equipment, locomotives, freight cars and railway equipment.

Russia’s imports from Egypt include fruits, vegetables, plastics, soap, salt, sulfur and cement.

“Trade between Russia and Egypt in national currencies has high potential but needs proper infrastructure and development to support such a change,” Sumin said.

However, there are a number of cons, Sumin said, citing the need for a network of correspondent accounts for banking systems in both countries. 

“Trade between Russia and Egypt is not balanced — $5 billion for Russia against $1 billion for Egypt in 2022," he said, explaining that the imbalance affects the ruble-pound exchange and liquidity levels on the market. 

To offset the imbalance, the excess in trade could be exchanged into other hard currencies or diverted toward capital markets or reserves, Sumin added. However, financial market instruments in the ruble and the pound would need to be developed to that end.

"Such instruments are still being developed, which may affect the readiness of big companies and banks to take risk on this market just yet," he said.

“Most major commodities such as oil and wheat are traded on exchanges with USD pricing. Therefore, most contracts for such commodities are linked to USD prices. Contracting in other currencies other than the US dollar leads to currency risk,” he added.

Analysts say Egypt’s ruble trade will boost its supply side, citing cheaper Russian products.

Cairo-based economist Hanan Ramses told Al-Monitor the move will bring down prices and help inflation. “Importing cheap commodities from Russia will make alternative products, especially food items, available in the local market. That may fight against the greed of merchants here. Such a move will enhance competition, which will help reduce prices,” she said.

Ramses argued that recent price hikes in the local market are a result of speculation on commodities. The country’s consumer price index hit 25.8% in January, up from 21.3% a month earlier, according to CAPMAS.

“Using the ruble for settlement away from US currency will help ease pressure on demand for the greenback in Egypt. This is better for Egypt’s international trade,” she said.   

She explained that Russia is seeking to increase its foreign trade with China, Arab countries and Africa in light of Western sanctions. “Egypt may become Russia’s gateway to African markets in the long run,” she added.

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