The $2.2 billion financing program signed between ITFC and the Government of Egypt came at a critical time for Egypt and helped the government in reducing the pressure on the foreign currency reserves. The aggregate financing amount reached 0.5% of the GDP of Egypt and showed the strength and ability of ITFC to syndicate such a considerable amount in the midst of the current political, social and economic conditions in Egypt with pricing that is lower than prevailing market rates.
The bulk of the financing program goes to financing imports of petroleum and petroleum products for Egypt. The Oil & Gas sector in Egypt is one of three key pillars of the Egyptian Economy accounting for approximately 15% of GDP and about 40% of the foreign currency income for Egypt. Furthermore, this sector is also considered a key pillar to other vital economic sectors and industries such as power generation, transportation, petrochemicals, fertilizers, etc.
The financing is also used to import strategic commodities which are considered vital for Egypt especially at this time covering a few months of the needs of petroleum and petroleum products for Egypt allowing the government to focus its efforts on other economic issues.
Securing Essential Food Requirements
Agriculture and food security is a top priority for the Egyptian Government especially in light of the growth of the Egyptian population and the fact that the Agriculture sector employs about 70% of the population. Egypt, nonetheless, depends on food imports to cover around 40% of its needs and is currently considered the world’s largest importer of wheat. The initial amount allocated to finance imports of wheat can cover a substantial portion of around 12-15% of Egypt’s current annual requirements of wheat.
- ITFC signs a Mudaraba Agreement with each of the Participants (participating banks/financial institutions)
- ITFC signs a Murabaha Agreement with the Beneficiary (Government of Egypt represented by various government entities such as the Egyptian General Petroleum Corporation and the General Authority for Supply Commodities).
- The supplier ships goods (petroleum, petroleum products, wheat or other foodstuff) to the Beneficiary.
- ITFC receives contributions from the Participants on pro-rata basis to cover the value of the shipment.
- ITFC makes a payment/disbursement directly to the supplier for the quantities shipped.
- ITFC sells the shipped goods to the Beneficiary on Murabaha basis (cost plus agreed upon markup).
- On the due date, the Beneficiary pays the due amount to ITFC.
- ITFC distributes back to the Participants their principal plus their share of the profit generated from the Murabaha transaction based on their.
What makes this deal standout?
- Considerable financing amount reaching around 0.5% of Egypt’s GDP.
- Financing mobilized during difficult and critical time in Egypt.
- Played a role in reducing pressure on the foreign currency reserves of Egypt.
- Supports key economic sectors in Egypt.
- Helps the government provide energy and food at affordable, subsidized prices to the public.
- Covers a few months of the import needs for Egypt.