Trouble in the gold market: Local gold prices surged to record highs last week, with 21 carat gold reaching EGP 1.8k for the first time ever. Demand for the commodity has ballooned in the wake of October’s EGP devaluation which has seen the currency fall almost 25% against the USD. In response, merchants have stopped pricing the precious metal amid confusion about the price of USD, sending the market into a tailspin. We speak to industry professionals about why this has happened as well as larger problems the gold industry has faced in recent years.

Gold is one of Egypt’s oldest trades: There are currently five large factories and 1.5k gold workshops in Cairo. Roughly the same number of workshops are also spread across all other governorates in the country. Collectively, these facilities employ a total of 250k people, Secretary General of the gold division at the Federation of Egyptian Chambers of Commerce (FEDCOC) Nadi Naguib told us.

The industry had not so long ago seen a boom in manufacturing and design techniques: Factories outfitted with Swiss and Italian machines in recent years have helped boost the production of gold goods that have drawn interest in gold at international gold exhibitions, Naguib and Milad explained.

And export figures proved promising as well: Egypt’s exports of jewelry and ornaments reached USD 1.13 bn between January and September of 2022, up 34% y-o-y, according to figures from the Export Council for Building Materials, Refractories, Metallurgical Industries, Construction and Building. Most of our exports are going to Canada and the UAE.

But a shortage of hard currency has slowed this trend: A big part of the current gold supply shortage is linked to an FX shortage, which has left gold buyers with limited financing options for new purchase agreements, Hani Milad, gold division head at FEDCOC tells us. Add to that an uptick in demand for gold from people looking for a safe haven asset to hedge against the devaluation of the EGP and that’s why prices have been skyrocketing in recent months.

Easing some of the taxes and fees levied on the gold industry could help boost exports. New legislative amendments to the Mineral Resources Act will scrap a 0.5% valuation fee on gold exports, Supply Minister Ali El Moselhy said yesterday. High fees have been restricting factories from expanding their operations, according to Naguib, who says that stamp duties, VAT, and export fees have placed an undue burden on the industry. Factories are struggling to keep pace with taxes and fees, which have also hindered their ability to send more goods for export, Nagub explains. He estimates that scrapping the fees could save mns of USD every year.

Tax code amendments could already be on their way: Representatives from FEDCOC’s gold division have for a while been exploring new accounting schemes with the Tax Authority that take current economic conditions into consideration, Naguib says. Classifying raw gold as capital and setting new depreciation rates are among the tools Naguib hopes will help alleviate some hardship in the industry at the moment.

Could Egypt become a regional gold hub? The Supply Ministry’s plans to develop a so-called gold city in the New Administrative Capital has some insiders optimistic that Egypt might become one of the largest gold manufacturers in the region. The Supply Ministry project, which is expected to set up 400 new workshops for gold production,150 educational workshops and a large technical school, are among the reasons Egypt could be slated to become a regional powerhouse, Rafik Abbas, former head of the gold division at FEDCOC explains.

Domestic gold discoveries might help: In recent years, gold exploration tenders have helped spur foreign investment in the mining industry, Abbas and Naguib said. The Iqat gold mine discovered in the Eastern Desert in 2020 was estimated to contain over 1 mn ounces of gold. USD 300 mn has so far been invested in the project and a total USD 1 bn could be invested over a 10-year period, the Oil Ministry previously said. Earlier this year state-owned Shalateen Mining Company announced that it plans to launch an international gold and minerals exploration auction for at least five areas in the Eastern Desert. This is in addition to eight separate licenses awarded by the ministry earlier this year.

But more regulatory oversight could be needed: Despite gold’s importance and growth, it needs some government intervention to regulate it, Wasfi Wassef, advisor to the gold division at FEDCOC told us. The Supply Ministry earlier this year demanded that gold be listed on the recently launched Egyptian Mercantile Exchange so that the government could ward off market manipulation and help make it a more lucrative option for foreign investment.

Some degree of regulation already exists: Stamps and scales involved in the gold production process are regulated but gold markets on the other hand are not, Nagy Farag, an advisor to the Supply Ministry on gold, told us. At the core of the current rout in the gold market is a supply and demand problem, he explains.

But there’s an even larger problem at play: A major concern for most people in the gold industry is the lack of quality vocational training and education, insiders we’ve spoken to have said. Egypt Gold School in Obour is currently the only facility in Egypt that teaches design, instrumentation and production arts. The technical training institute is led by Italian craftspeople and can only train about 2k of the 12k students that apply every year, Ahmed Bahnas, a spokesperson for the school has previously said. “We need the government’s support in opening several other educational institutions in this growing industry,” Naguib said.

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