Wednesday,18 July, 2018
Current issue | Issue 1283, (18 - 24 February 2016)
Wednesday,18 July, 2018
Issue 1283, (18 - 24 February 2016)

Ahram Weekly

Reining in imports

Recent regulations meant to curb imports are irking traders, reports Mona El-Fiqi

Al-Ahram Weekly

The Ministry of Industry and Foreign Trade recently imposed new regulations meant to close down unnecessary and low-quality imports and protect national industries. The new regulations, scheduled to go into effect on 16 March, cover a wide range of goods, including dairy products, children’s toys, furniture, garments, textiles, reinforced steel bars, bicycles, motorcycles, cosmetics, soft drinks, chocolate, canned and dried fruits, watches and household appliances.

In recent years, low-cost products made in China have flooded the Egyptian market, including fabrics, electronics, kitchenware, children’s toys and festive lanterns and biscuits.

Egypt relies heavily on imports. The total value of imports was estimated at $61 billion in the fiscal year that ended on 30 June 2015, almost three times the value of the country’s exports. The new measures are meant to tackle a shortfall in the hard currency needed to finance its purchases. Egypt’s foreign reserves stood at $16.4 billion at the end of January, less than half their size in 2011. The scarcity of hard currency has fed demand in the black market pushing its price to LE9 per dollar this week. The dollar trades at LE7.83 officially.

The new trade ministry regulations require that foreign companies exporting 50 items to Egypt be registered with the General Organisation for Exports and Imports Control. They should also provide documentation of their operating licences and accept inspection by an Egyptian technical team to assure compliance with environmental, health and safety regulations.

Khaled Hamza, chairman of the Imports and Tariffs Committee at the Egyptian Businessmen’s Association (EBA), said that Ministerial Decree 991/2015, regulating imports, was not clear for importers or foreign companies exporting to Egypt. The decree states that it is compulsory to present documents to register companies exporting to Egypt at the General Organisation for Exports and Imports Control.

These documents include a copy of the company’s licence, a certificate of it as a legal entity, its range of products, and a certificate stating that it is implementing relevant quality control systems, environmental regulations, international labour regulations and international accords. This certificate should be issued by a recognised institution accredited by the International Laboratory Accreditation Cooperation.

“But such a system does not exist in any country. The decision has made it clear that the government is putting up administrative barriers against imports to save foreign currency. Foreign companies will be subject to long bureaucratic procedures in order to be registered in Egypt,” Hamza said.

The regulations are there to hamper and reduce imports, Hamza added, arguing that they will also negatively impact many small- and medium-sized companies that work in importing and exporting, as well as their employees.

The issue of imports is a dilemma, he said, but suggested that the government could control the imports bill by reducing the quantities of imported products through the banking system in such a way that importers continue to work but on a smaller scale.

In addition to the Ministry of Trade and Industry measures, the Central Bank of Egypt (CBE) had also put in place a number of new procedures for importers to receive foreign currency from domestic banks.

The new system, in force since January, means that only those imports where foreign financial institutions send collection documents directly to the banks will be allowed, while those submitted by importers directly to the banks will be rejected.

The CBE regulations include obliging the banks to acquire a 100 per cent cash margin on letters of credit funding commodities for commercial companies or governmental bodies instead of 50 per cent as was the case before.

The new CBE policy excludes imports of medicines, vaccines and related chemical materials, and baby formula from the cash margin.

The CBE has disallowed the use of credit limits authorised by the banks for importers in paying the cash margin, as stated in the new instructions, including credit facilitations insured by securities or commercial documents.

The new system permits the refinancing of import operations for non-trade purposes, including the import of basic commodities such as capital commodities or requirements for production and food.

The CBE has announced that it is trying to reduce non-essential imports as much as possible after the increase in the balance of payments deficit, along with the state budget deficit, which reached LE279 billion at the end of fiscal year 2014-2015 compared to LE255.4 billion in 2013-2014.

Egypt’s trade deficit reached about $10 billion in the first quarter of the 2015-2016 fiscal year, which began in July.

At a press conference, Tarek Amer, the CBE governor, said that the rules to curb unnecessary imports may save about $20 billion this year, helping to ease a foreign exchange squeeze that threatens the nation’s economic recovery.

Amer added that the largest demand for foreign exchange comes from imports, so the measures are a quick fix to improve the balance of payments.

The move, according to CBE announcements, also aims to reduce fraudulent valuations of imports and reinforce the national economy by strengthening the competitiveness of local products against foreign imports.

However, importers have complained that the measures are too restrictive and will make it harder for merchants to do business, possibly affecting growth.

“The new system will add expenses at an average of 1.5 to three per cent of a shipment’s total price as a commission paid to foreign financial institutions. Neither an importer nor the country benefits from these costs,” said Ahmed Shiha, chairman of the Importers Division at the Cairo Chamber of Commerce.

The government’s justification that the regulations were issued to protect local industry is not true, according to Shiha, since national industry’s full capacity does not meet local consumption, in addition to its high prices.

Imports of household equipment are cheaper when compared to local production, for example, despite the fact that the importers pay customs duties as well as the importer’s profit margin.

Shiha added that the new regulations should include a grace period to give importers a chance to coordinate with foreign partners before their application because importers typically conclude deals to be achieved six months later and contracts include how the documents will be received by the importers.

Salwa Hassan, a government employee, agrees with the intention to boost national industry by helping consumers find alternatives to imported goods at the same quality and at a reasonable price.

However, she said that the prices of some locally manufactured products had increased recently, with no justification, following the issuance of the new import regulations.

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