Al-Ahram Weekly On-line 30 Nov. - 6 Dec. 2000 Issue No.510

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Exports boost only skin deep

By Mona El Fiqi

According to the latest report issued by the Central Agency for Mobilisation and Statistics (CAPMAS), Egypt's exports increased by 40 per cent in the first half of 2000. During the first half of 1999, Egypt's exports amounted to LE5.8 billion while during the same six-month period in 2000, they rose to LE8 billion. Also improving Egypt's trade balance was a reduction in imports from LE27 billion in the first half of 1999 to LE23 billion in the same period in 2000.

However, exporters have been reserved in their response to these figures. A close examination of CAPMAS's statistics reveals that the oil sector accounts for much of this increase. Crude oil exports rose from LE337 million during the first half of 1999 to LE579 million in the same period in 2000. Showing an even greater increase was the export of refined oil, which rose from LE1.3 billion during the first half of 1999 to LE2.6 billion during the same period in 2000.

The performance of exports from other sectors has been less impressive, noted Hilal Sheta, deputy chairman of the exporters' division of the Egyptian Federation of Chambers of Commerce (EFCC). He suggested that the figures are "inaccurate since they compare export performance between one year and the next in terms of monetary value, that is the prices at which exports are sold in world markets, rather than the actual quantities of goods or commodities. Thus, these figures can be misleading -- which is the case for oil exports."

And while CAPMAS cites an increase in agricultural, textile, pharmaceutical and leather exports -- during the first half of 1999 they were valued at LE2.1 billion rising to LE2.6 billion during the same period in 2000 -- exporters are sceptical that these figures indicate a dramatically improved performance for exports. Instead, they say, exports have rebounded to the levels they had reached before the Asian financial crisis of 1997.

Producers interviewed by Al-Ahram Weekly said that there are many fetters on the export potential of Egyptian goods. They cite insufficient tax incentives, a fixed exchange rate and frequent changes in export policy as some of the challenges they face.

Mohamed Qasim, chairman of the Egyptian Garment Exporters Association (EGEA) cites an example. Two weeks ago the government "suddenly decided to abolish" a system which had permitted producers to import materials for use in the manufacture of goods for export using non-liquid assets as a guarantee for up to 80 per cent of the credit sought. "This decision comes at a time when obtaining a line of credit to pay for imports is becoming more difficult since banks are tightening their credit procedures due to the liquidity shortage," Qasim said.

The impact of this change in policy on a strong sector like textiles has yet to be assessed. In 1999, textiles exports accounted for LE2.6 billion out of a total of LE13 billion, according to the EGEA.

In a memo sent recently to the Ministry of Economy and External Trade, textiles exporters emphasised that their industry is one of Egypt's most important, comprising 1,500 factories which employ 500,000 people. In addition to advocating the annulment of the decree which makes obtaining credit more difficult, they suggest that other factors concerning production be examined with the aim of implementing measures to allow manufacturers to realise their productive potentials.

Heavy taxes levied on inputs for the production of exports have long been a sore point with businessmen. The exporters division of the EFCC and the Egyptian Exporters Association (ExpoLink), a non-profit organisation founded by businessmen, have repeatedly called for the reduction of the tax burden on producers. A recently introduced measure allowing producers to pay the sales tax on the import of capital goods in instalments, falls short of what they believe is necessary, namely, a cancellation of all taxes related to production for export.

Even measures designed to alleviate tax burdens have caused exporters practical difficulties. Although exporters praise the rationale behind the tax rebate system to refund customs duties paid by the private sector, they complain that it is inefficient as it requires considerable paperwork and obtaining refunds takes an undue amount of time.

Added to lower taxes, producers suggest that the provision of low-interest loans would be an effective measure to encourage investment in export-oriented projects.

Despite the fact that there has been a general improvement in the quality of Egyptian products, bringing them closer to international standards, financial burdens still put exports at a disadvantage compared to other competitors due to their relatively high prices in the international market. Unless radical measures are implemented to increase incentives to produce for export, say producers, the government's goal of achieving US$10 billion in exports by 2005 will never be met.

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