Tuesday,12 December, 2017
Current issue | Issue 1136, 21 - 27 February 2013
Tuesday,12 December, 2017
Issue 1136, 21 - 27 February 2013

Ahram Weekly

Rationalising imports

In an attempt to save Egypt’s shrinking foreign currency reserves, the government has decided to raise the tariffs on luxury goods, reports Mona El-Fiqi

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Al-Ahram Weekly

The government last week approved a draft law proposed by the presidency that would increase customs duties on some 100 “unnecessary goods” such as watches, boats, and sunglasses, as well as luxury food items like shrimps and nuts. A detailed list of the new tariffs has yet to be produced.

The move came as part of a package of measures recommended by the Ministry of Industry and Foreign Trade with a view to halting the dwindling of Egypt’s foreign currency reserves.

According to Hatem Saleh, minister of industry and trade, the choice of the 100 goods to be targeted had been made according to a study of the markets and consumer needs, such that consumers would not be negatively affected. Saleh also said that the move was in accordance with Egypt’s international commitments towards the World Trade Organisation (WTO).

The decision is intended to reduce imports of such goods and thus save foreign currency for more essential products. According to Central Bank of Egypt (CBE) figures, Egypt’s foreign currency reserves were down to $13.6 billion in January 2013, compared to $36 billion two years ago.

Egypt’s total imports bill is estimated at $5 billion per month, which means that current reserves do not cover imports for three months. As a result, the government has been obliged to take measures to save foreign currency for the country’s basic needs and to conserve precious reserves.

The new governor of the CBE, Hisham Ramez, two weeks ago gave instructions to Egypt’s banks to give priority to importing essential products when providing foreign currency to clients.

The CBE listed a number of goods, including basic food items such as wheat, sugar, meat and cooking oil, pharmaceuticals, fertilisers and oil products, as priorities. Ramez said that the banks were not prohibited from providing foreign currency to import other goods under the new regulations as long as basic needs were met first.

Meanwhile, the Ministry of Industry and Trade is also considering new criteria for its export support programme, under which exporters would have to first deposit the export value of foreign currency with local banks before receiving export support from the government.

In order to encourage exports, the government is providing LE3.1 billion in 2012/2013 to exporters, and it is scheduled to raise this to LE4 billion next year as annual support.   

Such decisions are expected to save foreign currency for importing basic needs, while pumping more currency from exports. However, consumers are afraid that the measures may also lead to a shortage of some imported products and hikes in prices in local markets.

“We are starting to see shortages of some products, such as durable goods and vehicle spare parts. These might be extended to other more important products too,” Samar Mohamed, a housewife, said.

Mohamed added that the government’s moves had meant that “we no longer have the luxury of choosing between imported and locally manufactured products, but are obliged to use locally produced goods regardless of quality or price.”

The rise in tariffs on some goods would be an excuse for retailers and local producers to increase the prices of their goods, she said.

While consumers are worried by the increase in tariffs, representatives of domestic industries are in favour of the move. 

Magdi Al-Manzalawi, chair of the customs committee at the Federation of Egyptian Industries (FEI), said that “this step is a good and important one since it will have a positive impact not only on saving foreign reserves, but also on protecting local industries from the dumping of imported goods.”

The moves would help local industry to take the lead in local markets, he said. “All countries worldwide have the right to give priority to their local products. The decision is a very good one if we are looking at the country’s benefit, even if it is against what retailers or consumers may desire. In current circumstances, the country’s benefit should take precedence.”

Al-Manzalawi said that the hundred imported goods targeted by the regulations had local alternatives of high quality and at suitable prices. The decision would mean more demand for local products, which would lead factories to work at full capacities.

“The result will be positive in providing more job opportunities for our young people at a time when the unemployment rate is inching up,” he said. According to the Central Agency for Public Mobilisation and Statistics, the unemployment rate reached 13 per cent during the fourth quarter of 2012.

The decision to raise customs duties would also help achieve social justice, he added, since while importing foreign products was still permitted this would cost wealthy consumers more should they wish to buy imported products instead of locally produced ones.

Mohamed Al-Bahi, chair of the taxes committee at the FEI, agreed that the government had the right to protect the country’s foreign currency reserves in present circumstances. “It has the right to limit the imports of luxury goods in order to reduce the use of foreign reserves,” Al-Bahi said. 

He added that according to the country’s WTO commitments, Egypt has the right to impose higher rates of tariffs since it had not yet reached its upper levels. “If the government does not reduce imports of unnecessary goods, we will soon face great problems in importing essential products,” Al-Bahi said.

The FEI has asked the government to raise customs duties on some imported goods that are manufactured locally since their entrance to the country had a negative impact on local industries, he said.

Although the decision has been praised by businessmen as a chance for local products of high quality that are compatible with European Union standards, some experts have argued otherwise.

According to economist Mokhtar Al-Sherif, the move to raise tariffs will lead to an increase in prices and higher inflation rates. Society is facing so many economic problems that a hike in prices will be disastrous at this stage, Al-Sherif said.

“The move means more pressure on consumers and less purchasing power to the local currency. Society has already has to rationalise consumption over the past two years due to the bad economic situation Egypt is facing,” he said.

Al-Sherif said that the government was trying to find any way to increase its revenues, even by raising customs duties, as a result of the economic problems it faces. But the decision to limit imports of luxury goods was unlikely to be effective, since such goods only made up less than a quarter of the total imports bill. 

More than 70 per cent of Egypt’s imports are raw materials, machinery, and basic food goods, according to Al-Sherif. “This is not the suitable time to raise tariffs, and the government lacks transparency when issuing such decrees. It should inform the public of the real reasons behind this step,” he said.

 

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