Remittances from Egyptians abroad continued their upward pace, hitting USD 2.6 bn in November, jumping 65.4% y-o-y, according to a statement from the Central Bank of Egypt. It’s also an encouraging picture in the longer term, with the first five months of the current fiscal year witnessing a 77% y-o-y rise in remittances to USD 13.8 bn and inflows in the first 11 months of 2024 up 47.1% y-o-y to USD 26.3 bn.

It’s a very different picture month-on-month, with remittances in November down just over 10% from October’s USD 2.9 bn. But the one-off drop should be little cause for concern, economists and analysts told EnterpriseAM, including economist Mona Bedeir, who told us that a “slight monthly decline” should only worry us if it “sustains for the next few months.” HC Securities’ Heba Mounir agreed with Bedeir, noting that “it is just a one-off drop, and should not be considered alarming as long as there is no trend.” “When it comes to tracking remittances, we look at three trends. Namely, the monthly reading performance y-o-y and both the quarterly and annual inflows y-o-y,” Bedeir explains.

By the numbers: Remittances are expected to make up 8% of the country’s entire GDP in 2024, up from 5% in 2023 and 6.1% in 2022. In terms of current account inflows, Egyptians abroad sending FX home are expected to account for 35% of inflows in 2024, up from the 25% recorded the year prior, but still a long way off the 45% recorded in 2020 before remittance inflows starting falling with the onset of the FX crisis and appearance of the parallel market taking remittance flows away from official channels.

You probably knew this already, but the GCC is our biggest source of remittances, with most of the estimated 14 mn Egyptians working abroad based in the Gulf. Leading the pack as the main source of incoming FX is Saudi Arabia with 2.5 mn Egyptians, followed by the UAE and Kuwait with around 600k each.

If you’re looking for a reason why remittances have surged, look no further than the EGP float. Egyptians abroad have started sending more of their remittances through official channels after the float of the EGP in March put an end to the parallel market that had pushed remittance flows through unofficial channels. Remittances are an important source of FX for the country and the state is working to increase flows by 10% each year to reach USD 53 bn by 2030.

The government is hoping to encourage the necessary tech landscape to encourage further remittance inflows, including through the central bank’s December launch of a new service allowing instant fund transfers to Egypt from anywhere in the world. The new service allows users in Saudi Arabia, UAE, Jordan, Qatar, Kuwait, Oman, and Bahrain — and will add more countries to the list soon.

An uptick in remittances is needed more than ever, considering the roughly USD 7 bndrop in Suez Canal revenues last year spurred on by Houthi attacks on passing vessels that saw the world’s major shipping lines reroute around the Cape of Good Hope. Increased remittance inflows will help reassure policymakers that even if the anticipated post-ceasefire return of traffic through the canal does not materialize, there are still other sources of FX it can tap to fund commodity imports, meet external debt obligations, keep the parallel market at bay, assure investors they can repatriate earnings, and improve FX liquidity and by extension the stability of the EGP.

But remittances and the Suez Canal aren’t the only sources of FX — and FX liquidity — with the government looking to other sources including tourism, FDI, and exports.

Regular readers of EnterpriseAM will know that there’s plenty in the works to increase tourism numbers, with tourism redevelopment projects, incentives to build hotels, a push to increase Egypt-bound flights, and other initiatives often coming up through the news well. Prime Minister Moustafa Madbouly earlier this week appeared to return to the government’s previous target of attracting 30 mn tourists a year by 2030, up from a recently revised-down target of 25 mn.

FDI also plays a big role in the government’s plans to bring in FX and shore up the current account deficit, with the newly government laid out a target to increase FDI by 14% every year. While the current account deficit has taken a beating on a drop in Suez Canal earnings, rising oil imports, and a widening non-oil trade deficit, FDI has been helping cushion the blow, rising nearly 20% y-o-y to USD 2.7 bn during the last quarter data was available.

Upping exports and cutting down the country’s import bill is seen as an important way to shore up FX liquidity, with the government hoping to have a roughly USD 10 bn trade surplus by 2030 that will be achieved by a 15-20% annual increase in export value to eventually teach USD 115.8 bn annually by the end of the decade.

VOLATILITY IN THE FX MARKET IS NOT NECESSARILY A CAUSE FOR CONCERN-

The EGP crossing the 50 mark against the greenback in December wasn’t the best way to close out the year, but the EGP has since been on the mend having regained against the USD. But the issue is more about a strengthening USD than it is a weakening EGP, with the election of Donald Trump on 4 November sending the greenback upwards, Senior Economist Esraa Ahmed told EnterpriseAM. Despite the continuing pressures and initial drop off, the EGP has narrowed its losses to just 2.5% since Trump was elected.

The national currency is also doing better against the USD than many world currencies, with the EUR now down 3.8% against the greenback, CAD having slipped 3.2%, and the GBP weakened 3.7% since we found we were in store for another Trump presidency. Pushing up the USD and other currencies down is anticipation of protectionist trade policies, the promise of deregulation, an increased likelihood of high interest rates for longer, and the USD being seen as a safe-haven asset from the uncertainty and chaos that now seem to be a trademark of a Trumpian White House.

There’s also plenty of local seasonal factors to take into account, including — but not limited to — Egypt always has a massive import bill kicking in two or three months ahead of Ramadan — a fact many of us know all too well by our shopping habits in the run up to the holy month. Similarly, in a country of 110 mn people, there’s 5-6 mn that qualify as wealthy who often take an end-of-year vacation. That’s like the entire population of Lebanon going on holiday and relying on FX to pay for hotels, meals, and unwanted souvenirs — enough of the fridge magnets, please.

The business calendar also plays a role, with many companies looking to acquire FX so they can pay it out in dividends to foreign investors as the year comes to a close. Businesses also look to build up their FX stock during the period as a way to manage FX losses or gains and prepare for 2025 expenses.

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