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The Egyptian parliament has approved the launch of a new export credit agency (ECA) as the North African state works to overhaul its ailing economy and help local exporters tap new international markets.

In recent weeks, Egypt’s legislature passed a bill enabling the creation of the Egyptian Export and Investment Guarantee Agency (EEIGA) and said it would replace the existing Export Credit Guarantee Company of Egypt (EGE).

The Central Bank of Egypt will acquire all of the agency’s shares from existing shareholders, including the Egyptian development lender, Ebank, as well as the National Investment Bank, which hold stakes of 70% and 22% respectively.

While the financing capacity of the ECA is yet to be confirmed, GTR understands that there will be an overhaul of the management and governance structure and the agency is slated to begin operations in the first quarter of 2024.

The ECA will initially target short-term receivables and trade-related working capital solutions, and in a second phase, will look to develop its offering to include longer-term structures and investment insurance.

The acquisition and new state-backed structure will more closely align the ECA with “international best practice”, according to a source with knowledge of the matter.

“The full underwriting of the ECA’s obligations by the government is a key change… This is the global standard and all the more important in a challenging credit environment,” they tell GTR.

Efforts to reform Egypt’s export credit system have been underway for at least the past four years, with the central bank announcing plans for a new export credit risk company in 2019.

At the time, the central bank said the agency would have a focus on driving up Egypt’s historically low trade volumes with Africa.

“When you look at the percentage of trade between Egypt and other African countries, we found it to be around 2% of the total exports,” said Ramy El-Shaarawy, then a general manager at Egypt’s central bank.

GTR understands that boosting Egypt’s limited trade with Sub-Saharan Africa is still a key focus, yet the EEIGA will seek to create a diverse portfolio of risks spread across markets globally.

This is “in line” with the mandates of other emerging market ECAs, such as those in Asia or elsewhere in Africa, the source says.

The announcement comes at a time of significant economic turmoil in Egypt, Africa’s second largest economy.

Last week, Fitch Ratings downgraded Egypt’s credit rating to B-, citing heightened financial risks as well as growing national debt, which was reported to stand at 97% of GDP in July, up more than 15% from a year prior.

A devaluation of the local currency by nearly 50% against the US dollar since March 2022 has acutely affected Egyptian businesses, while in September annual urban inflation soared to a historic high of 38%.

Foreign currency issues, high US interest rates as well as rampant inflation are making it difficult for Egyptian buyers to meet their financial obligations, says a September memo from the US Department of Commerce.

Local importers are struggling to secure hard currency from their banks to procure raw materials and machinery from abroad, it adds.

“Most of these companies have worked closely with their US company partners for many years with minimal problems. However, in 2023, the number of US companies that contacted the US Foreign Commercial Service in Cairo for assistance with non-payment issues more than quadrupled,” the memo says.

Despite the gloomy near-term outlook, Cairo is working to implement economic changes as part of a US$3bn International Monetary Fund package signed in December.

In May, the World Bank forecast that Egypt’s overall macroeconomic environment would improve in the medium term as the African country continues to push ahead with stabilisation and structural reforms.

Such efforts could help “unleash the private sector’s potential in higher value-added and export-oriented activities necessary for job-creation and better living standards,” the World Bank report said.