Egypt is a prime location between Africa and the Middle East with high potential for international businesses, however it is still a complex environment. With its large population, growing economy and development of being a regional trade center, Egypt is a land of opportunity but poses significant challenges of cross border payments to whosoever is doing or wants to do business in or with Egypt.
These can have adverse impacts on the company’s growth, profitability and efficiency. For this reason, there is a focus on the effective practice of international payment mechanisms that are best suited for a business or company with ambitions in the Egyptian market. Current payment issues make it terribly hard to do cash management and payment planning and executing.
Businesses working or working with Egypt can expect to have multiple revenue generation activities like export, import, providing services and foreign direct investment including the likes of big state owned companies, MNCs, local distributors or even small scale retail shops.
The international markets, including Africa, the Middle East, Europe, and Asia, are key business strategy components of Egyptian firms. The government policies, availability of foreign currency, and the different types of the business environment impact all firms environment as well. Therefore, in the context of Egypt, there is a need for a more elaborate and dynamic financial system that can withstand the present intricacies in the global business environment.
Egypt Operational Challenges: A Detailed Perspective
In Egypt , firms involved in international business encounter unique operational challenges, such as
- Red Tape and Bureaucracy: Operating in Egypt requires bearing extra costs because of having to deal with endless red tape that involves having to fill out paper works, apply for different licenses, follow all the rules set and go through customs. The World Bank’s “Doing Business” report is illustrative when it comes to Egypt , as it tends to rank lower than other countries regarding many issues, such as the number of bureaucratic requirements, and the high number of permits needed.
- Currency Fluctuations: The Egyptian pound (EGP) has been subjected to risks due to its fluctuations, and its constant change renders long term contracts and projects extremely difficult, particularly for businesses that require strong financial planning and have set budgets. Moreover, Central Bank of Egypt (CBE) has a tendency to enforce rigid rules to limit the supply of foreign currency which makes transactions increasingly complicated and adds to business risks. The statistics from the International Monetary Fund (IMF) has rendered the forecasts impossible by highlighting that the EGP has experienced volatility of above 20% in relation to the US dollar within two years.
- Infrastructure Limitations: Egypt as a country is in transition and is gradually making enhancements to its infrastructure however there remain endless hurdles for transport, communication logistics and internet connectivity for a service enabling business to sustain. It has been highlighted in a report by the African Development Bank (AfDB), that improper infrastructure is a constraint for a business in every type of growth including geographic expansion.
- Challenges in Raising Funds: For SMEs, getting access to financing and loans is always a hassle which creates all sorts of operational complications. Not securing works or raising funds poses a direct negative effect on small business’ competition and international expansion capability.
- Financial and Political Factors: Political forces in Egypt act as a disruptive force for any organization doing business in Egypt especially when it comes to international expansion. Because of such a certainty, government policies, and regulatory environment ensures policies are are adapated making it harder for today’s entrepreneurs. The World Economic Forum (WEF) analysis expressed the impact of political instability in developing economies — this resulted to lower investor confidence and more business risks when it comes to operational aspects.
Consequences Of Payment in Egyptian Business
International payment solutions provide a means to manage an organization’s transactions with suppliers, customers, and other partners in Egypt and along with other regions for any business out there. Payment processes need to be efficient, secure, reliable, to execute day to day operations, strengthen business relations and maximize profits. Unfortunately, many people continue to use methods for which the disadvantages are self-evident. Payment systems affect the speed, safety, and costs of cross-border transactions.
Conventional automatic banking methods such as wire transfers, which are quite popular in Egypt, usually result in operational inefficiencies and cost burdens. Such issues include:
- High Costs of Transactions: There are high transaction costs in traditional platforms because they have both fixed and a percentage fee systems. It is evident that ALL firms’ bottom lines are affected in these circumstances. Research conducted by the Egyptian Federation of Industries (EFI), shows that Egyptian firms incur an average of 5-8% in fees for every foreign transaction which reduces profit margins and increases unnecessary costs because it is overheads.
- Risks Associated with Currency Conversion: The conversion of currency coupled with the volatile nature of Egyptian currency and also the charge handled by traditional economic institutions while currency conversion can be a cause of losses. The instability of the currency deeply complicates financial forecasts and is a major red flag for businesses. Data from the Central Bank of Egypt (CBE) indicate that the EGP has deteriorated significantly, often at the shortest notice, making it impossible to correctly estimate the cost of any worldwide transactions.
- Lengthy Processing Times: Traditional approaches tend to have long processing times, for example, payments are clear after several days which can be detrimental to cash flow and causes delays in payments to suppliers. This lag in time makes it challenging to streamline the supply chain. The Society for Worldwide Interbank Financial Telecommunication (SWIFT) has carried out research that indicates that the duration taken to process international wire transfers using the Egyptian banking system is 3 – 7 business days, with additional time sometimes included depending on the banking partners and payment corridors.
- Cross Border Remittance Barriers: One of the main problems of the modern systems is their cost. Cost of transactions makes it impossible for many businesses to operate cross-border. The global average cost of sending money through remittance services is high, mainly due to lack of competition and different value-added services being rendered. The Financial Stability Board (FSB) has given a strong endorsement for recognizing that cross-border transactions can be relatively more expensive.
- Compliance Challenges: All these issues are compounded by the limited functionality of legacy systems when trying to work with a regulatory environment that comprises of tax compliance, AML and international sanctions. The Thomson Reuters report provides an insight into how the costs and compliance burdens add up for companies following the traditional methods to process payments, estimating an annual rise of 10 to 15 in average compliance cost.
Today’s Egyptian Payment System
Modern international payment platforms have developed tools that allow companies to execute financial transactions more swiftly and give them better control over their payments. These include:
- Period of Transaction Reduction: With the use of more modern systems, intermediaries are greatly reduced which in turn brings down the transaction costs. Research has showcased that modern systems can help save costs by 30 to 20 percent. Furthermore, a modern system not only reduces the cost per transaction but also increases efficiency, over a growth period the Harvard Business Review notes a case study that relates to this.
- Speedier Transaction Period: Additionally, since realtime payment methods are being employed the delays in transactions are minimized and the cash flows witness an improvement, all which optimizes supply chain management, as a result. The Payment’s Innovation Alliance (PIA) states that average times for the transactions have decreased by almost 60 % to 50% and with other payments it can take just a few seconds for the transaction to be completed.
- Payment Compliance Monitoring: With the Aid of modern payment platforms the level of transparency has improved. These financial tools enable viewers to monitor all the stages of the transaction, eliminating the uncertainty around payments. Enhanced tracking systems that record all financial transactions and generate reports can aid in overseeing finances and predicting future events.
- Currency Management Solutions: These platforms empower companies to manage currency movement via their innovative currency conversion and hedging solutions which significantly minimizes risk and protects from financial distress. Research conducted by the Internationl Union of Retails, shows that while opening a currency compex such tools can mitigate risk exposure and unpredictable losses to a great extent.
- Automated Compliance: These tools also implement a range of international anti money laundering requirements and prevent the risk of non-compliance. all these automated features make complex processes seamless and guarantee compliance to any legal rules. Automated systems, according to McKinsey, help in reducing risks associated with regulatory compliance by 30-40% on average.
Benefits and Impact: Improvement of Financial Metrics
Pursuant to the installation of modern payment solutions, Egyptian companies stand to enjoy significant benefits including the following:
- Marked Decrease in Costs: Advanced payment solutions that include multi-currency facilities cut down overall cost by lowering transaction charges, curbing foreign exchange losses, and increasing productivity.
- Enhanced Cash Flow: Quickened payment processing translates into a steady cash inflow as suppliers and partners are paid on time thereby making for a fine but smoother working capital management.
- Boosted productivity: Modern systems automatically carry out several processes thus simplifying all workings and allowing employees to concentrate on more insightful purposes.
- Improved Control and Transparency: In the form of better reporting and transparency companies are able to track their payments, manage their finances better and in return also see better financial performance.
- Risk Mitigation: Security and compliance features available on the modern platforms do lessen the chances of fraudulent activity and the chances of running into any regulatory issues are also cut down to size which in return prevents financial penalties.
- Greater Flexibility and Scalability: The systems allow for adaptation and scalability which meets the needs of the growing businesses further allowing for long term sustainability.
Egypt Global Payments: Case Studies
An Egyptian textile exporting medium sized firm that deals with buyers all around the US and Europe had issues handling international payments. There served to be expensive transaction fees and the time taken was not efficient with a lot of added uncertainty regarding currency fluctuations. Through the aid of a modern payment platform they were able to reduced their transaction fees by thirty percent while also being able to lessen their payment processing time to 24 hours or less. They witnessed a drastic improvement in their cash flow which helped them increase their profit substantially.
A company that manufactures machinery in Africa that previously struggled with compliance restrictions and inefficient payments barely got through with a small payment importing firm from Cairo that procures machines from China and Europe. The platform for automated payments that the company now uses streamlined their entire payment procedure, making it a lot more cost effective, and easier to use. These actual world instances emphasize the advantages which come with modernizing one’s business systems.
The CEO of Collect&Pay, George Arakelov specifies that “Egyptian companies dealing with the international market should not view new payment technologies as a purely technical tool, instead they have to see their business potential”, when asked about Egyptian enterprises that seek to expand their operations. And such modern strategic view underlines the shifting role of companies in the economic space.
The Egyptian business environment poses several unique challenges such that there is a need for modern solutions to cross-border payments. This is no longer an option for any business that wants to succeed in a competitive global market but instead a strategic decision to be utilized. Maximizes the potential for growth and minimizes the risks that Egyptian businesses face by adopting the use of modern technology, modern international payment platforms.
Taking the initiative to initiate the new Collect& Pay technologies will most definitely position these companies in a better place enabling them to thrive and remain competitive in the global marketplace.