Sunday,22 October, 2017
Current issue | Issue 1290, (7 - 13 April 2016)
Sunday,22 October, 2017
Issue 1290, (7 - 13 April 2016)

Ahram Weekly

Extra support for exporters

Egypt’s exporters are asking the government for more financial support, reports Nesma Nowar

Extra support for exporters
Extra support for exporters
Al-Ahram Weekly

In the light of Egypt’s dwindling exports, increasing the money allocated to the Export Support Fund (ESF) could be one way to boost exports and therefore foreign currency earnings.

The money allotted to the ESF amounted to LE2.6 billion in the current 2015/2016 budget. Through this fund, the government carries out its export subsidy programme to encourage Egyptian companies to push for more exports and to increase the competitiveness of Egyptian products in foreign markets. 

The subsidy ranges from one to 10 per cent of the total value of the exports.

Exports are an essential source of Egypt’s foreign currency reserves, which witnessed a marked decline in 2015 when non-oil exports registered $20.5 billion, down from $26.7 billion a year earlier and compared to $29.3 billion in 2013, according to government figures. 

Non-oil exports also witnessed a decline due to problems related to acquiring the foreign currency needed to import the inputs needed for production.

Minister of Trade and Industry Tarek Kabil said in October that the ESF’s allocations had increased to LE3.7 billion. But despite the increase, chairman of the Ready-Made Garments Exports Council, Mohamed Qassem, said the figure was “very feeble” compared to the support given by other countries that compete with Egypt. 

He said that one of the reasons Egyptian exports had plummeted was a drop in the financial support from the ESF.

In the years from 2006 to 2011 Qassem said that the weaving sector had used to achieve a growth rate in exports that amounted to 28 per cent, which in turn had had a positive impact on the economy at large through increases in production, employment and foreign currency earnings. 

However, the sector’s exports had started to decline following the 25 January Revolution until the growth rate had slipped to four per cent in 2012. 

As the political instability that followed the revolution had taken its toll on the country’s economy exporters have been facing difficulties and delays in receiving financial support from the ESF, and the sum allocated to the fund has been reduced. 

However, the government’s exports support bill did not halt even during these tough times. 

Qassem said that besides a lack of ESF support, the decline in exports after the revolution was attributable to the unstable political conditions, an increase in the cost of production, and a global trade slowdown. 

He asked for an increase in ESF allocations to reach LE10 billion, saying that this sum could give a push to Egyptian exports, generating foreign currency revenues in the short term. 

“Even if the government increased the support to LE10 billion, the figure would still be lower compared to other countries,” Qassem told Al-Ahram Weekly.

He said that China provided a 15 per cent cash subsidy on every export bill, which in turn increased the competiveness of Chinese products and enabled it to flood foreign markets. 

A recent report by N Gage Consulting, a consultancy firm, said that in the light of the current state of the Egyptian economy, exports could become a key driver for short-term yields. 

It said that making use of an already established industry such as the exporting industry could have a sensible impact in a short time frame. 

The report defined the sectors that qualify for export subsidies as the agri-foods industries, agriculture products, chemical industries, spinning and weaving industries, leather products, engineering products, furniture products and construction materials industries.

These sectors could benefit from export subsidies reaching up to 10 per cent of the export value, depending on several variables such as the percentage of local components, the geographical location of factories, the exports’ destination, employment incentives, and the use of innovative technologies, among others.

In the 2013/2014 financial year, export subsidies amounted to LE 2.6 billion, with over 2,000 Egyptian companies benefiting from the programme, the report said.

As for the criteria needed to receive the subsidies, Qassem said that each sector had its own criteria and each one defined the export opportunities it had and presented them to the government. 

“The government in the end decides whether or not a certain company will receive the support or not,” he said. He added that in general the government’s top criteria when it came to choosing who receives support are the “added value, employment and foreign currency revenues.”

For a company to apply for the exports subsidy programme, the N Gage report said that it needed to be a member of the relevant industry’s export council. It also needed to submit its request within one year of the product’s export date to the ESF. 

The submitted file should include a valid and ongoing ISO certificate from a government-authorised agency and an industrial and export register, among other documents. After submitting the file to the ESF, it will undergo two rounds of examinations by specialised committees. Following these, the subsidy should be released within six to nine months from the date of submission.

There has long been a debate over the ESF, with some claiming that its money goes to big companies at the expense of smaller ones. However, Qassem said that this was an “empty debate,” as the beneficiaries of the programme were all Egyptian producers, regardless of the sizes of their companies.

He added that this kind of support was considered “compensation” to Egyptian producers because of the high cost of production in Egypt, giving as an example the high cost of borrowing in the country which amounts to 14 to 15 per cent, whereas it is much lower in other countries. 

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