Demand for Egyptian Olive Oil Increases Following Currency Floatation

Summary

Egypt’s deci­sion to drop its cur­rency peg led to a sig­nif­i­cant deval­u­a­tion of the pound, ben­e­fit­ing the olive oil indus­try with increased exports. The move was part of a larger effort to reset the econ­omy after years of polit­i­cal tur­moil, with other sec­tors like tourism also expected to ben­e­fit from the deval­ued cur­rency.

In an effort to stim­u­late its econ­omy and entice for­eign investors, Egypt dropped its cur­rency peg of 8.8 Pounds to the U.S. Dollar on November 3^rd of last year. This caused the pound to shed half its value, offer­ing olive oil pro­duc­ers in Egypt an export oppor­tu­nity.

The Egyptian olive oil indus­try has seen con­sid­er­able growth in recent years. Production increased 10-fold between 2005 and 2015, ris­ing from 2,500 to 25,000 tons. Exports of olive oil also grew dur­ing this period from 500 to 5,000 tons.

Allowing the Egyptian pound to float on inter­na­tional mar­kets is part of an over­all effort by the gov­ern­ment to reset the coun­try’s econ­omy after years of polit­i­cal tur­moil that included the ouster of Hosni Mubarak in 2011 and a mil­i­tary coup that top­pled his suc­ces­sor, Mohammed Morsi. The flota­tion enabled Egypt to secure a three-year, $12 bil­lion loan from the International Monetary Fund, the largest of its type on record in the Middle East.

The cur­rency floata­tion, cou­pled with decreas­ing global sup­ply and increas­ing demand, have also helped boost some of Egypt’s largest pro­duc­ers of olive oil. Wadi Food, a sub­sidiary of the Wadi Group, reported a sales increase of 40 per­cent in 2016, dri­ven pri­mar­ily by olive exports. Similar growth fig­ures were released by the Olivee com­pany, which saw olive oil exports increase 65 per­cent to $19.5 mil­lion in 2016.

Despite the increas­ing opti­mism in olive oil sales, the over­all Egyptian econ­omy is still con­tract­ing. The recently released Emirates NBD Purchasing Manager?s Index (PMI) for Egypt reached 46.7 in February, up from 43.3 in January. While growth in these fig­ures indi­cates the fastest accel­er­a­tion in Egyptian eco­nomic activ­ity since 2014, the PMI must sur­pass 50 to indi­cate the start of an eco­nomic expan­sion.

Egyptian olive oil and other com­mod­ity exports are not the only sec­tors that stand to ben­e­fit from the coun­try’s cur­rency floata­tion. Tourism is expected to pick up as the offer­ings become more afford­able to for­eign­ers. The indus­try suf­fered a sharp con­trac­tion over the past few years due to polit­i­cal tur­moil, plane crashes, and secu­rity con­cerns, drop­ping from a high of 14 mil­lion vis­i­tors in 2010 to 9.4 mil­lion vis­i­tors in 2016. However, high-pro­file tourism vis­its to Egypt, includ­ing the recent arrival of American actor Will Smith, help to encour­age new vis­i­tors.

Perceptions of Egypt as a des­ti­na­tion for travel and invest­ment, and as a source of Mediterranean agri­cul­tural com­modi­ties, is also set to be influ­enced in the months ahead fol­low­ing the gov­ern­men­t’s hir­ing of two Washington-based pub­lic rela­tions firms. A pos­i­tive boost to American per­cep­tions of Egypt and a deval­ued cur­rency may cause an increase of Egyptian olive oil imports into the United States.