Egypt’s rising interest rates and soaring inflation have hit second-quarter profits at some of the country’s food and drinks companies, providing evidence that consumers’ purchasing power is being squeezed.
Second-quarter net profits at Edita Food Industries, one of Egypt’s largest snack food producers, plunged 88% to 5.73mn Egyptian pounds ($319,888.27) from 47.42mn in the same period last year, even though sales rose 11.2%.
Juhayna Food Industries, Egypt’s biggest listed producer of packaged juice and dairy products, has reported an 8.6% drop in second-quarter net profits despite an 18.27% rise in sales.
Analysts said Edita’s and Juhayna’s results, published last week, showed that sales growth resulted from product price increases rather than actual sales volumes.
“The increase in production inputs are because of the increase in inflation...which had directly affected the companies profitability,” Ahmed Adel, senior analyst at Beltone Financial, said.
Egypt introduced sweeping economic reforms last year as part of a three-year $12bn International Monetary Fund loan programme, floating its currency and cutting subsidies to attract foreign investment that fled after a 2011 uprising.
But these measures have contributed to an increase in inflation above 30% which has reduced people’s purchasing power.
The central bank has also raised key interest rates by 700 basis points since November when it floated its currency.
Edita’s financing expenses jumped by 137% to reach 25.42mn pounds, while Juhayna’s expenses increased by 67% to reach 98.98mn pounds, the companies said in their earnings statements last week.
Food and beverage companies have increased spending on sales and distribution to maintain their market share, which has been hit by a drop in demand due to price rises.
Last month, the government increased electricity prices by up to 42% this fiscal year for households.
A customer counts his Egyptian 50 pound notes at an exchange house in Cairo. An increase in inflation above 30% in Egypt has reduced people’s purchasing power.