Experts have praised an agreement to use national currencies in future bilateral trade between Cairo and Moscow instead of the US dollar that was taken during Russian President Vladimir Putin’s visit to Egypt last week.
The two countries also discussed a free-trade agreement between Egypt and the Eurasian Economic Union led by Russia, as well as Russia’s supplying Egypt with more natural gas.
By replacing the dollar with the Egyptian pound and the Russian rouble for settling accounts in bilateral trade, the decision is seen as a way of boosting the volume of trade and reducing dependency on the dollar in trade agreements, something that had previously contributed to the weakening of both currencies on the exchange markets.
This is not the first time Russia has sought to reduce the influence of the US dollar on its currency. At the end of last year, an agreement with China resulted in both countries switching to domestic currencies in trading.
Officials from Egypt and Russia are still discussing the mechanisms by which bilateral trade can be conducted in local currencies. The countries aim to double their mutual trade exchanges to reach $10 billion in five years. In 2014, bilateral trade was $4.5 billion, an 80 per cent increase compared to the previous year.
“Both sides will benefit from direct payments and will not have to worry about charges for the conversion of currencies,” said Salama Al-Khouli, an economist at the National Bank of Egypt, adding that the move would ease the burden on Egypt’s foreign currency reserves.
Al-Khouli said that the decision to use national currencies did not necessarily mean paying for goods and services in money and that a kind of barter system was more likely to take place.
It would mean that the Egyptian government and companies would be able to import from Russia in exchange for the value of purchases of Egyptian products by the Russian government and businessmen, he explained.
A special banking system needs to be created between the two countries as part of the agreement to make sure trade accounts are settled between the two sides.
According to Al-Khouli, special accounts can be opened in the banks of the two countries in order to settle debts without having to transfer money each time.
He explained that through such an account a Russian company could deposit roubles for the value of products it purchased from an Egyptian company, and then the Russian bank concerned could wait until an Egyptian company bought products from a Russian company, and vice versa.
Debts could be settled at the end of a scheduled waiting period, he added.
Putin told Al-Ahram daily last week that settling accounts by national currencies would also help create more favourable conditions for Russian citizens spending their holidays in Egypt. The depreciation of the Russian rouble against the dollar and euro has been discouraging Russian tourists from visiting Egypt.
After the agreement to use local currencies comes into effect, Russian tourists would be able to pay tour agents in roubles and not worry about changing exchange rates against the dollar. A third of all tourists visiting Egypt each year comes from Russia. Egypt received around 9.5 million tourists in 2014.
The method by which the currencies will be valued remains a topic of discussion between the central banks of Egypt and Russia.
Once Egypt and Russia start trading in local currencies, the same method could be applied to other countries that have higher bilateral trade volumes with Cairo, like China, said Ahmed Sheiha, head of the Importers Division at the Cairo Chamber of Commerce and former head of the Egyptian-Russian Business Council.
This will lead to a significant reduction in the huge amount of payments in dollars for Egyptian imports, Sheiha said. “The dollar, consequently, will not be the main force moving our economy.”
The trade balance between Egypt and Russia, currently tilted in favour of Russia at almost $4 billion against $500 million, is expected to become more balanced after the dollar is replaced with domestic currencies and the barter system.
However, obstacles still face Egyptian products when trying to enter Russian markets. “The customs authorities in Russia are valuing some Egyptian products at more than their real value and more customs duties are paid as a result,” said Mustafa Al-Naggari, head of the exports committee at the Egyptian Businessmen’s Association.
He added that the Russian customs authorities had been concerned that the bills of Egyptian products entering Russian markets were not accurate.
“This is a problem that should end soon, as a Russian delegation will be visiting Egypt on 24 February to discuss ways to solve the matter,” Al-Naggari said.
He said that Egypt’s efforts to reach an agreement with the Eurasian Economic Union, which includes Russia, Belarus, Armenia and Kazakhstan, would make a huge difference to Egyptian exporters because entering the markets of these countries duty-free would give the Egyptian economy a boost driven by a quick rise in exports.
However, this could take some time as the four countries are still studying benefits.
Al-Naggari said that Russian demand for Egyptian products would likely be limited primarily to goods that Russia has stopped importing from the EU in retaliation for the sanctions imposed by the latter following the crisis in Ukraine.
“Agricultural goods and dairy products top the list,” he said.
Egypt relies heavily on Russian wheat to meet local demand, with almost 40 per cent of wheat consumed in Egypt coming from Russia. The agreement to pay in Egyptian pounds instead of dollars should ease pressures on the country’s hard currency reserves. Net international reserves stood at $15.4 billion at the end of January.
Egypt and Russia will also cooperate in the area of energy, and discussions are underway for the construction of a nuclear power plant in Dabaa on the north coast.
The Ministry of Petroleum has announced that an agreement will be signed by the end of February with the Russian company Gazprom to provide Egypt with liquid natural gas over the next five years, with an average of seven shipments per year starting this year.
Neither the exact amount of gas in each shipment nor the total amount was specified.
Going-for-roubles – Al-Ahram Weekly.