Al-Ahram Weekly On-line 9 -15 November 2000 Issue No.507
Published in Cairo by AL-AHRAM established in 1875

	Egypt Region International Economy Opinion Culture Books Travel Living Sports Profile People Time Out Chronicles Cartoons Letters

A golden opportunity

By Sherine Nasr

In an unprecedented move to reinvigorate the declining gold industry, the Ministry of Finance lifted the one per cent tax on the import of raw gold. The ministerial decree, which reduced taxes on some 55 other items, most of which are manufacturing inputs, has been ratified by the President Hosni Mubarak.

Medhat Hassanein, minister of finance, said that the purpose of the decree is to support local production of gold items by reducing the cost of the raw material used, thereby allowing finished items to be priced more competitively. In recent years, Egypt's 7,000-year-old gold jewellery industry has faced fierce competition from neighbouring countries.

As is often the case with new decrees, this one caused some confusion in the market as traders were unsure of its implications. According to Adel Malak, a major gold wholesaler, such a response was expected. "I believe there will be little movement in the gold market during the next two weeks." Traders, said Malak, are refraining from concluding deals until they are sure how the new decree will be implemented.

In spite of some apprehensions, traders have welcomed this latest measure to support the gold industry. "This is one decision that has been taken after thoroughly studying the actual state of the market," commented Samah Nabil, representative to Egypt of the World Gold Council (WGC).

Previously, duties levied on raw gold amounted to 2.5 per cent of its value. This levy comprised one per cent for customs, one per cent taxes and half a per cent for "services."

According to statistics by the Customs Administration, gold entering the country illegally currently comprises the bulk of raw gold in the Egyptian market. To arrive at this conclusion the Customs Administration compared the volume of gold that has been officially registered entering the country during a one-year period with the volume of gold sold in the local market during the same time span.

The results of the administration's investigation were surprising said its head, Mohamed Abu She'sha'. "It was startling to discover that gold registered entering the country legally does not exceed one per cent of the actual volume of gold traded in Egypt."

Before the Customs Administration conducted its investigation, the decline in revenue from duties on gold had alerted officials that something was not right. In 1997, this revenue amounted to LE295 million, while in 1999 it was LE206 million. During the first nine months of this year, revenue was only LE115 million. These figures led Abu She'sha' to conclude that "smuggling has been cheaper than importing gold legally."

The decree is only the most recent measure to reduce duties on raw gold. In 1995, tariffs were reduced from 10 per cent of the value of the raw gold, to five per cent, then, two years later, they were decreased to 2.5 per cent. However, even when duties were levied at this final figure, smuggling continued.

According to Nabil of the WGC, a 10 per cent levy in 1995 necessitated payment of approximately LE3,000 in taxes per kilogramme of gold. "This was ridiculous," Nabil said, "A gold trader sells a kilogramme according to its international price plus a marginal amount which they take as profit."

For the past two years, the Ministry of Finance has studied the industry in Dubai, Saudi Arabia and Turkey, all of which are stiff competitors for Egypt. It was discovered that none of these countries imposes duty on the import of raw gold.

"It is time to think in global terms. By so doing, we can guarantee that no gold will enter the country illegally," said Abu She'sha'. By maximising the volume of gold imported legally, everyone wins: the state will still receive revenue from duty on gold and importers will find bringing gold into the country via legal channels, cost effective.

"Now [following the implementation of the decree] the material will be available at the international price. Every workshop will be able to buy the amount it needs. Hopefully, then, more attention will be given to improving workmanship so as to be able to compete with other countries in the region," said Nabil.

And for those dealing in gold, the decree has come none too soon, having followed a two-month decline in trade. "The dollar crisis effectively raised the cost of gold. Traders were very cautious about concluding deals lest prices suddenly rise or fall," commented Malak. Another factor contributing to the sluggishness of the gold market is the beginning of the school year when budgets are already stretched by tuition and other school-related expenses. "Gold is a luxury. We usually face a period of complete stagnation at the beginning of the school year," said Malak.

© Copyright Al-Ahram Weekly. All rights reserved

	weeklyweb@ahram.org.eg