Egypt a potential growth market for FX brokers after government closes 48 deliverable FX bureaux
As Egypt cracks down on black market deliverable FX dealers, this is why FX brokers may want to look toward onboarding Egyptian customers
Egypt is not, and has never been much of a focus for FX brokerages in any region of the world.
Other areas of the Middle East and North African region have, on the other hand, been very much the target of retail FX brokerages for almost a decade, with most firms in Cyprus, Britain, Australia and New Zealand having organic Arabic-speaking sales and retention desks for that purpose, with quite significant success.
Egypt, however, languishes in the shadows and is a nation steeped in poverty with a very undeveloped financial markets economy, yet has a young and relatively educated population.
Whilst trading the markets is not common among Egypt’s 91 million population – the largest of any Arabic-speaking country – foreign exchange in the deliverable form is very prominent indeed.
So prominent in fact, that the unofficial market (black market) for Egyptian currency has increased tremendously over recent months and attracted the attention of the government.
Since the beginning of 2016, the Central Bank of Egypt has closed down 48 deliverable FX bureaus for violating rules and operating at black market rates which are highly inflated compared to official exchange rates.
The government in Egypt has now stepped up its crackdown on black market trading, stating that such practice is a contributing factor to the rapid devaluation of the Egyptian Pound.
As an example, the US dollar is being sold on the black market for about 12.65 to 12.75 Egyptian pounds, according to traders, far more than the official rate of 8.78.
Egypt is a nation with low productivity and a very low GDP, and therefore is dependent on imported products, therefore exchange rates are critical to the entire economic structure of the nation.
The decline in tourism has removed most of the flow of valuable currency from the market, and Egypt’s government has this week set jail sentences of three to ten years and fines of up to $560,000 for black market currency trading.
At the beginning of 2016, there were 115 deliverable FX bureaus in Egypt, now there are only 67 and the Egyptian Pound has plummeted by 14% in value since March this year as a result of attempts to close the gap between market and black market rates.
This presents an opportunity for retail FX brokerages in that whilst Egypt’s population for the main part view currency trading as a vital means of conducting business abroad rather than trading the markets, Egyptian customers can be onboarded by retail FX firms, and use a trading platform to deposit in local currency, with the default currency on the MetaTrader 4 brokerage account being in US dollars.
Quite clearly, any spread and commission charged by using a trading platform would be far lower than available in Egypt’s often nefarious deliverable FX bureaus which fabricate black market rates and charge high fees for conversion into dollars.
Once a client deposits into a retail FX brokerage account, which is held outside Egypt, there is no possibility of such manipulation occurring, thus order flow commissions could be generated by brokerages for effecting actual transactions between local currency and US dollar, which in itself represents FX trading and adds to the trading volume of retail FX brokerages.
An untapped market, and one that has to be approached differently, this is most certainly an opportunity worth exploring.