Why Egypt is experiencing record-high remittances

By Sherif Tarek
Posted on Thursday, 30 September 2021 17:16

A man counts US dollars and Euros at a money exchange office in central Cairo, Egypt. REUTERS/Mohamed Abd El Ghany

Real estate growth, the pandemic and GCC economies are among the factors affecting remittances that Egypt receives every year from Egyptians abroad: a key source of much-needed hard currency.

Amr Mahmoud, an Egyptian pharmacist who lives in Saudi Arabia, bought an apartment back home five years ago and doesn’t rule out the possibility of purchasing more properties in Egypt.

The flat is located in Cairo’s eastern outskirts, where many relatively new areas, mostly allotted to the middle-upper class and well-off citizens, have sprung up over the past couple of decades.

Having paid the apartment’s last instalment in 2018, Mahmoud says the reason for buying this house is to enable him to settle down in the Egyptian capital at some point in the future.

He says he could purchase another flat as a form of investment, a move many Egyptians would opt for, as they consider real estate a safe haven, irrespective of how battered the economy is. “Real estate remains one of the best investments in Egypt,” Mahmoud tells The Africa Report, adding that property value is constantly stable under any circumstances.

“It draws the interest of most foreign-based Egyptians on the account of low risks,” he says, adding that what also makes real estate a favourite choice for Egyptian expats is that “there is no need to spend any extra amounts for maintenance or operation” after the acquisition.

Vital hard-currency source

Mahmoud is one of the 9.5 million registered Egyptians living abroad; an estimated half of these citizens reside in Egypt’s neighbouring country, Saudi Arabia.

Egyptians who ply their trade in the oil-rich monarchy are believed to be sending home the lion’s share of remittances to Egypt. In the 2020/2021 fiscal year, which ended on 30 June, remittances hit a record-high of $31.4bn, registering a year-on-year jump of 13%, the second yearly increase in a row.

Ahead of foreign portfolio investment (FPI), tourism, foreign direct investment (FDI) and the Suez Canal – all of which were abysmally affected by the coronavirus pandemic – remittances serve as Egypt’s highest source of hard currency.

Why is it important?

“The money comes in the forms of banking transfers, and subsequently the official banking system in Egypt receives these remittances,” Monsef Morsy, co-head of research at Egyptian investment bank CI Capital, tells The Africa Report.

“These remittances are sent in US dollars,” yet the vast majority of recipients receive their transfers in local currency and the greenback eventually “reaches the central bank through the interbank [system], which increases the foreign reserves,” he says.

We’ve witnessed an increase since the beginning of corona[virus].”

In August, Egypt’s FX reserves stood at $40.67bn: it had been rising since June 2020 after a drop to around $36bn from over $45.5bn on the back of the pandemic. The recovery started following funding agreements with the International Monetary Fund (IMF).

Egypt, the most populous Arab nation, is in constant need of an abundance of hard currency to fulfil its foreign debt service, buy basic foodstuffs and maintain a stable exchange rate.

Before the float of the local currency in November 2016, many overseas Egyptians refrained from transferring money through the interbank system to avoid the official exchange rate while converting their money to Egyptian pound.

At the time, Egypt’s black market – which was virtually eliminated after the local currency flotation – offered much higher rates, amounting to almost double the official one.

This, among other reasons, caused a plunge in the inflows of hard currency, with remittances – which significantly impact Egypt’s current account – recording merely $17.08bn in the fiscal year 2015/2016.

Real estate partially drove surge

The aggressive expansion of Egypt’s real estate market can be seen as ‘part of the reason’ why remittances surged to $31.4bn in the past financial year, according to Morsy, who says many Egyptians perceive real estate investments to be their safest bet.

Radwa el-Swaify, head of equity research at Cairo-based Pharos Holding for Financial Investments, echoed similar sentiments, but dismisses the notion that the record-high increase in remittances can be primarily chalked up to real estate investments.

“Remittances are not directly related to real estate. Buying real estate can be one form of spending, but it is not a key driver of inflows,” she tells The Africa Report. “It is related to Egyptians abroad and to GCC [Gulf Cooperation Council] economies’ performance.”

The pandemic effect

CI Capital’s Morsy also says that next to real estate investments, the pandemic – which first hit Egypt in 2020 – has also spurred the growth of remittances.

In fiscal year 2019/2020, remittances stood at $27.76bn, registering a nearly 10.4% year-on-year increase, up from $25.15bn in the previous financial year, which had witnessed a slight drop in the funds remitted by Egyptian expats.

“We’ve witnessed an increase since the beginning of corona[virus],” Morsy says. “Remittances were … going up during that period” as Egyptians abroad were sending money to help their families back home amid an ensuing economic crunch, he tells The Africa Report.

Will remittances keep going up?

Swaify says she expects remittances to stabilise at around $28-$32bn and keep rising “but not massively from here.”

Morsy, for his part, says that in the best-case scenario, the current increase rates will not go up any further, underscoring countervailing factors that could put remittances on a rather erratic course.

On the one hand, Egypt’s recent agreement over reconstruction works in chaos-hit Libya and Iraq, and possibly Palestine, might further push remittances.

With more Egyptian workers abroad, “the volume of the remittances could increase,” Morsy says. On the other hand, the impact of the pandemic and real estate growth – which he believes have contributed to growing remittances – ought to ease off eventually, and hence will put the brakes on future increases, he says.

Auspicious opportunities

Mahmoud, the pharmacist in Saudi Arabia, says that during the pandemic, his own Egypt-bound remittances actually shrunk “due to a drop in income.” He cited “economic pressures on the employer, which often causes employees’ perks to be diminished”, not to mention recurrent staple-price hikes in 2020 and 2021.

Nonetheless, aside from real estate, Mahmoud still sees possible auspicious investment opportunities in Egypt to dabble in. He believes consumer-goods trading can be lucrative with a thorough feasibility study, thanks to high consumption rates driven by an overgrowing population.

Understand Africa's tomorrow... today

We believe that Africa is poorly represented, and badly under-estimated. Beyond the vast opportunity manifest in African markets, we highlight people who make a difference; leaders turning the tide, youth driving change, and an indefatigable business community. That is what we believe will change the continent, and that is what we report on. With hard-hitting investigations, innovative analysis and deep dives into countries and sectors, The Africa Report delivers the insight you need.

View subscription options