Buying American

Under the CIP Egyptian institutions can import anything from a steel mill to a dentist's chair -- made in USA. Niveen Wahish surveys the harvest

In the late '70s, public sector utilities, such as these grain silos, received funding to buy American imports

Over the past 15 years, the Commodity Import Programme (CIP) has received an annual allocation of $200-$250 million. This figure represents almost a third of the total annual US economic assistance to Egypt.

The programme, implemented through a number of Egyptian banks, provides short-to-medium-term dollar financing at fixed exchange rates for the import of US-manufactured commodities. The shipping company and the insurers must also be of US origin.

With a minimum transaction size of $10,000 and a maximum of $8 million, the import of almost anything from a dentist's chair to equipment for a steel mill can be financed through this programme.

The CIP w of economics at the Faculty of Economics and Political Science, described it as an effective means of promoting American industry.

Although the programme may have promoted the interests of US manufacturers, Egyptian participants are not complaining. More than 1,400 Egyptian private sector individuals and entities have made use of the CIP.

Sherif El-Magh without USAID, his company could have faced difficulty procuring financing. According to him, medium-term financing for agricultural purposes used to be scarce.

The grace period was designed to offset the costs implied by the time lost during procurement, manufacturing, shipping and installation.

This financing was not a exchange which restricted enterprises' ability to obtain equipment, whether for upgrading or expanding operations.

The last public sector commodity procurement was in 1997. Over the period 1975-1997, $3.9 billion went into the public sector CIP. Some of the items financed included coal for running steel and power industries, chemicals, typewriting equipment and grain.

"The transition towards financing the private sector mirrored the path that Egypt was taking," one USAID official said. Egypt was moving out of a period where everything was controlled by the state.

As Egypt made the transition to a market economy, the CIP programme shifted towards serving the private sector. At that time insufficient credit was available to the private sector through the banks, and foreign exchange was in short supply.

Not only did the programme provide medium-term hard currency financing, but it also enabled importers, whether retailers or end-users, to pay back loans in local currency, thus hedging against foreign currency exposure.

This was a ma began using it in 19change rate of the pound," he said.

Nonetheless, economist Gouda Abdel-Khalek believes commodities supplied through the programme are over-priced.

"Once US companies sense that it is funded through a USAID programme they raise the price, thus the real transfer of resources is significantly less," he says.

However, beneficiaries of the programme argue that American companies are not informed that a transaction will be financed by USAID. "If they were, companies would understandably raise the price, and we would not benefit from the programme," El-Maghraby said.

But Abdel-Khaican products. El-Maghraby, however, points out that businessmen choose whether or not to use the programme. "It's like any business opportunity," he commented.

Nasrallah preseilised, the advantages of buying from the US diminished.

"Five to six years ago, we found it cheaper to buy from Europe because the value of the dollar was higher than European currencies," he said.

Yet Nasrallah's company has not stopped using the programme. "We use it to purchase products of our choice," he says. Minimising the number of suppliers of equipment, explains Nasrallah, is logistically simpler because workers become accustomed to working with a certain brand, added to whi to the CIP. Fmodities from the European Union or from the local Egyptian market at lower interest rates.

But as Abdenesses that benefit from the programme eventually develop to produce for export. "The immediate effect of the CIP programme is that it increases Egypt's imports, but has it enhanced Egypt's capacity to export or substitute imports?" he asks.

While no assessme Egypt, generally regarded as a relatively economically disadvantaged area, by giving them better financing terms. The programme also gives special incentives to encourage industries to improve overall environmental quality. Industries do not normally like to spend money on equipment that reduces the negative impact on the environment because it is not only expensive, but unproductive, at least in the short term, said one USAID official.

MONEY TO BUY: Anyone is eligible to participate in the CIP programme, whether importing for resale or for use by their business. Financing is available on a first-come-first-served basis.
Companies in free zones or ones that are 40 per cent-owned by the public sector are excluded from the programme. The CIP is evaluated periodically, and Egyptian banks that do not perform well -- for instance, in assessing the credit-worthiness of participants -- may be eliminated from the programme. Loans carry standard commercial interest rates.
Once the importer decides who will be his supplier, the money is transferred to the supplier. The money repaid by businessmen to the banks is, in the final run, deposited with the Central Bank of Egypt. At the end of the year that money is available to the government for general budgetary support.

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		Al-Ahram Weekly Online 21 - 27 June 2001 Issue No.539
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