Mixed blessing

Imports continue to outsize exports. Niveen Wahish sounds out expert opinion on the pros and cons of the situation

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In recent weeks, the Ministry of Trade and Industry (MTI) has been tightening its grip on low quality imports that do not conform to acceptable standards and specifications. On Saturday it threatened to blacklist any company exporting to Egypt goods that do not meet clear quality assurance criteria. The warning was made after some imported Chinese spare parts repeatedly failed to meet lab quality tests.

Earlier, MTI also put 27 Egyptian importers under investigation for presenting forged quality assurance certificates on their imports from China. The certificates are a requirement on any Chinese imports. If investigations prove foul play, the Egyptian importers will be barred from importing. The ministry also threatened that any Chinese company that cooperated in the forgery would be blacklisted.

The news was music to the ears of Yomn El-Hamaki, head of the Department of Economics at Ain Shams University. She says that such actions are badly needed in order to put a brake on imports, which are draining the economy. According to MTI figures, in the fiscal year 2008/09 merchandise imports (which include petroleum and non-petroleum goods) reached $50 billion, double the level of exports, which sat at $25 billion.

According to El-Hamaki, almost half the imports are intermediary goods, which reflect a deep discrepancy in the structure of Egypt's industry. She laments that industry is very much dependent on imported inputs, whether machinery, knowhow or raw materials. "When the imported component is high, the local industry loses its competitive edge," she says.

But Ahmed Sheiha, head of the Importers Division and the Cairo Chamber of Commerce (CCC), points out that imports play an important role in balancing the needs of the market. He says that were it not for the competition that comes with imports, local producers would not produce quality goods, knowing they have captive consumers.

Sheiha is against imported goods that do not abide by acceptable quality standards and specifications. However, he pointed out that should it be proven that the quality assurance certificates required on Chinese imports were forged, the importer should not be blamed, but rather the Chinese side.

Historically, Egypt has always suffered a deficit in its trade balance with imports surpassing exports, according to Cairo University economics professor Ahmed Ghoneim. But he says that this situation is acceptable when a country is in an industrialisation process. "We are in a globalised world. Manufacturers cannot depend on local inputs when imported [inputs] are cheaper."

Ghoneim pointed out that the output of intermediary industries required in the manufacturing process is not yet at the desired quality and reliability in Egypt. He added that the fact that Chinese products are inundating the market, with everything from plastic cups to Ramadan lanterns, is a problem for local producers.

While the recent decision by the Chinese government to appreciate its currency was welcomed by the world's economies. Chinese exports to Egypt from China, according to MTI figures, stood at around $6 billion in 2008 while Egypt's exports only amounted to around $400 million. That El-Hamaki finds outrageous. "Since they are benefiting from our market they should help us with the knowhow to improve our imports to them and make this a win-win situation," she says.

El-Hamaki, too, is aware that the countries that have succeeded in their development efforts had high levels of imports. However, she insists that there has to be an action plan in support of feeding industries.

"Egypt badly needs result-based management. We have been propagating this for years but nothing is happening." According to El-Hamaki, there also has to be spending on research that serves industries or that can help solve food shortages. "Expenditure on improving wheat productivity will help reduce wheat imports, for example," she said.

El-Hamaki pointed out that the recent efforts by Rachid Mohamed Rachid, minister of trade and industry, to support exporting industries that utilise local components is a move that will encourage feeding industries. Also, the focus on quality assurance will make a difference in the type of goods that enter the market. She says that Egypt cannot close its borders to imports due to its commitments within the World Trade Organisation, but it has to regulate imports, as do many countries worldwide, including the US.

Magda Kandil, executive director of the Egyptian Centre for Economic Studies (ECES), laments the effect of imports on inflation. When goods are imported, she explains, their oft- higher international price passes through to the local economy, pushing up inflation indicators. On the other hand, she says that imports play a positive role when they are used to increase productivity. While a study carried out by the ECES is not yet conclusive, she says, preliminary analysis shows there is a correlation between increased imports of industrial inputs and improved growth in Egypt.