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Al-Ahram Weekly 17 - 23 June 1999 Issue No. 434 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 17 - 23 June 1999 Issue No. 434
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Profile Features Living Travel Sports Time Out Chronicles People Cartoons Letters Duty-free curbs stir controversy
By Mona El-FiqiIn an attempt to protect local industry and fight smuggling, the government has issued new regulations for the duty-free business. Mohieddin El-Gharib, minister of finance, issued a decree which curtailed the period for duty-free purchases from one month to 24 hours after arrival from abroad.
Moreover, Ahmed Guweili, minister of trade, issued another decree banning the sale of durable goods in duty-free shops outside customs outlets. The decree gives duty-free companies a two-month transitional period during which they can sell their stock of durable goods but levied with customs duties.
The new regulations met with mixed reactions. Local industrialists welcomed the decision and agreed with the government that tightening the business of duty-free shops will help reduce smuggling and will increase sales of local goods.
On the other hand, individual citizens expressed the view that the 24 hours stipulated by the new decrees would not be enough for them to buy their needs from duty-free shops.
The owners and shareholders of duty-free companies were upset. They said that the new regulations implemented on 8 June will have a negative impact on their business.
"The problem is that the government facilitated and encouraged the duty-free business for many years, and then suddenly completely abolished our business by these decrees," said Mohamed Gaballah, chairman of United Sons Company for Free Shops.
"In 1994 the government raised the duty-free purchase value from $100 to $200 to be allowed twice a year, instead of once a year, for Egyptians returning from abroad, and four times a year for tourists. What happened to change the government's policy?" Gaballah wondered.
He claimed that protecting the local industry is not the real reason for the decrees since durable commodities sold in the duty-free shops do not account for more than one per cent of the total sales of durable goods in the market. "Moreover, some [types of] imported durable goods are not locally produced," Gaballah said. He added that the timing of the regulations "is very bad" because this is the season when Egyptian expatriates return for the summer vacation, and, therefore, all duty-free companies have prepared a large stock of durable goods which will not be easily sold after these regulations go into effect.
Besides the long-term expected adverse effect of these new regulations on the balance sheets of companies working in the duty-free business, they have already started to suffer losses.
Soon after the declaration of the new decrees, Misr Company for Free Shops, one of the leading companies in the duty-free business, posted the highest loss in share value among the companies traded in the market last week. Shedding 15.7 per cent of their value, the shares of the company were the first victims of the new regulations.
But it is not only a matter of decline in share value that the company will have to face. What is more important is the negative effect resulting from these regulations on investors' confidence in the stability of the government's policies.
Duty-free shops are in for a recession
Two years ago when the government offered 77 per cent of Misr Company for Free Shops for public subscription, subscribers were encouraged by the company's future potential which was based on its high sales figure. This figure will further deteriorate as durable goods' sales account for more than 40 per cent of the total sales of the company. Moreover, cutting the period for duty-free purchases will worsen the situation as the company will be deprived of a significant part of its revenues which it used to raise from sales to travellers returning from abroad.
The negative impact of the new regulations will also be reflected on some public companies working in the business like Misr for Foreign Trade Company, which the government is currently preparing for privatisation. Because of the new decrees, the offering of any tranche of this company will be met with reduced interest from potential investors.
Gamal Mohamed, deputy chairman of United Sons Company for Free Shops, said that application of the regulations will cause his company to lose millions of pounds because it will not be able to sell all of its stock during the two-month grace period.
Moreover, "the new decrees will result in the dismissal of 5,000 employees working in the duty-free business which is not fair," said Mohamed.
The government cited the reasons for the decrees as being mainly to fight smuggling, tighten demand on the dollar -- since the dollar is used to purchase duty-free goods -- and increase the treasury revenues by LE2.4 billion, which is the total value of the duty-free shops customs' exemption, Mohamed said.
Khaled Hamza, chairman of the imports and customs committee of the Egyptian Businessmen's Association (EBA), said that the government has wronged the owners of duty-free shops. He advised that they file a law suit in order to reinstate their rights to continue their businesses according to the regulations formerly approved by the government.
This business has been legally approved by the government for many years, Hamza said. If there is smuggling, the government has to tighten controls on smugglers rather than ban the sale of durable goods in duty-free shops.
Hamza suggested that the government regulate purchases by allowing sales only to passport holders so as to guarantee that no traders will abuse the service.
There are 21 companies with licences to work in the duty-free business which started 50 years ago.
