How Egypt’s Currency Plunge Trapped a University
CAIRO—The American University in Cairo has been recently plagued with a serious financial problem. On November 3, the Egyptian government let its currency, the pound, float against the dollar instead of using a fixed exchange rate. The pound has subsequently halved in value, going from 8.8 pounds to the dollar to almost 18 pounds to the dollar this week. Egypt was under international pressure to float its currency in the belief that the change would have some positive financial effects, such as making its exports more competitive and increasing tourism. The flotation is also a step toward the country getting a $12 billion International Monetary Fund Loan. But for university faculty or staff members paid in Egyptian pounds and students who have to pay their tuition in a price set in dollars, the change has had a potentially crippling effect. Many students say they may not be able to continue their studies.
Al-Fanar Media interviewed Brian MacDougall, the university’s chief financial officer, and Executive Vice President for Administration and Finance to explain how the university is responding to the pound’s decline.
Can you update us on the latest resolutions reached to deal with the current tuition crisis? The university has announced a grant scheme. How would it be financed?
The president has conveyed several times to the university’s community that we want to make sure that all existing students have the opportunity to complete their studies at AUC. So the first step was to deal with the sudden flotation of the Egyptian pound and its impact on the students who have not yet paid for the fall semester, approximately 25 percent of our students and families who still owe us money. To fix that, we agreed that these students could pay the remaining amount of tuition at the pre-float rate. This translated into the university having to recognize an approximately $1 million loss. But given that this is an emergency situation, this how we will deal with the fall semester.
Then we quickly started to think, what happens to the spring semester? After many conversations with the board of trustees, an agreement was reached that we would announce the availability of $5 million in emergency student support, with the understanding that this is going to be allocated on a need basis, and not across-the-board, because we want to make sure that the money is being used on students who really need it.
In March 2017, our board of the trustees will expect the administration to come forward with a recommended budget for the next academic year where there will be assumptions around tuition, other revenues and expenditure.
You have talked about the sudden flotation of the pound and the immediate effect it had. But there was a lot of speculation that the government was planning for a pound flotation across the last period. Why didn’t AUC hedge against exchange-rate risk?
Prior to the spring of 2014, AUC absorbed all losses associated with the [partial] devaluation of the pound. Back in 2011, the Egyptian pound was below 6 to the dollar, and then it started to devalue. Every 25 piaster devaluation triggered a $1 million loss to the university. As we were building the budget for the year 2015 in consultation with the Parents Association, the Student Union and the University Senate budgetary committee, everyone agreed that we should share the risk. How best to share the risk, but to look inside the formula for the expression of tuition, and denominate the tuition half in pounds and half in dollars, which basically mirrors the realization of both currencies where you are in a situation that will be self-correction. The university will have to deal with half of the devaluation, and others will deal with the other half. This question “Why AUC did not hedge” was asked a lot. But actually we did, in consultation with the rest of the university community.
The problem is the size of the change. Before this change, a 25 piaster devaluation would trigger a million dollar loss. Now that the dollar has gone from nine Egyptian pounds to 18 Egyptian pounds, AUC is holding in its lap a $36 million problem.
This crisis has not just affected students, but staff and workers. Any plans for them as well?
We understand that our workers are the most impacted with respect of the devaluation of the pound and we anticipate making adjustments to salaries of our employees who are paid in Egyptian pounds. However, I don’t have an answer today for how much these adjustments will be. We are looking at changes in terms of CPI [The Consumer Price Index, or cost of goods]. We are looking at what other employers will do. We have not forgotten that the purchasing power of the employees has been completely eroded.
More generally, how will this crisis affect the quality of education? The university administration has been increasingly criticized for focusing on accumulation of wealth rather than protecting the essence of the quality education it provides.
I’m happy to talk about the different variables of quality, access and cost. The most important thing that we do is to preserve the quality of our academic programs. One might say that the university is only concerned with money. The answer is, No we are not. We are mostly concerned with the quality of our education. We will make every effort that we can to reduce costs in a way that will not negatively affect the quality of the academic experience. We are open to every option, and if you have any suggestions on how we can reduce csts that would be terrific. On the other side, we are looking at ways of increasing non-tuition revenues.
This crisis is not new, and disagreements with the student body around the cost of tuition have been on the table for quite a long time. Any long-term solutions?
I came to AUC in 2008 and I have been involved in helping to manage many protests and strikes and I think that the importance of communication cannot be overstated. We have to ensure that we clearly and consistently deliver the facts and provide the context of how decisions are made. You will never be in a position where everybody is happy, but you have to be in a position where everyone has the opportunity to understand the reasons why particular decisions are made and what the implications are.
Freedom of expression includes protests, and AUC takes pride in encouraging them. But there also has to be a point where people are prepared to listen to each other. You will not be able to go to the other side of the problem unless you are prepared to hear all other perspectives, and you may not always agree but then at least you understand.