Thursday,20 September, 2018
Current issue | Issue 1317, (27 October - 2 November 2016)
Thursday,20 September, 2018
Issue 1317, (27 October - 2 November 2016)

Ahram Weekly

Towards caps on prices

The government is to introduce guide profit margins for basic commodities in a bid to rein in price increases, writes Mona El-Fiqi

Towards caps on prices
Towards caps on prices
Al-Ahram Weekly

In a bid to control the markets, the cabinet announced the establishment of a new committee last week headed by Prime Minister Sherif Ismail that will set profit margins on basic goods in an attempt to reduce price increases.

The committee, in cooperation with the Federation of Egyptian Industries and the Egyptian Federation of Chambers of Commerce, will be responsible for determining the appropriate way to decide profit margins.

It will not set the prices for commodities, Ismail told a press conference, denying that the government would set obligatory prices since the Egyptian market was a free one. Trade and Industry Minister Tarek Kabil told Reuters that the new mechanism would offer guidance only and firms would not be legally required to comply. 

“The one thing I can assure you of is that there is no obligation in setting prices. We will not be pushing companies to sell at a certain price. It is just a direction, that is all. There is no legal requirement,” Kabil said.

The decision came in response to public concern at the recent increases in prices. Over the past few months, the prices of almost all products have witnessed increases. “The government should do something to protect consumers from greedy traders,” said Ahmed Ismail, a Cairo teacher and the father of three children.

Ismail said that since the government had devalued the pound against the US dollar in March there had been a state of chaos in the markets. “The problem has nothing to do with the foreign currency shortage since greedy traders have raised the prices of all products even those that are locally produced,” Ismail added 

Noha Mahmoud, a public-sector employee, also complained that commodities including food items, clothes, stationary, pharmaceuticals, leather products, and detergents were on the rise, while her family’s income had remained stable.

It was not only the increased prices that Mahmoud complained about, as there have also been recurrent shortages in food commodities like rice and sugar. In the past such shortages have usually been followed by increases in the prices of these items. 

“No one knows the reason behind this, but I hope the new committee will be able to control the increases of prices for the benefit of consumers and stand against the greedy traders,” Mahmoud added.

Mohamed Abu Shadi, a former minister of supply and internal trade, told Al-Ahram Weekly that the decision was a good step towards controlling the market. 

“Law 163 for 1950 gives the government the right to intervene to control the market. The government can set a purchasing or an obligatory price for a product for a limited period of time in cases of unjustified hikes or as a result of monopolistic acts,” Abu Shadi said.

It can set profit margins for essential products at an average of 30 per cent: 10 per cent for producer’s profits, 10 for wholesalers, and 10 for traders. “This is a normal profit margin that is currently applied in the EU and the US and most other countries,” Abu Shadi said.

However, he explained that traders were usually against government interference in the market, where they enjoyed the upper hand. “The profits currently gained in some sectors reach 400 and 600 per cent, which is unacceptable,” Abu Shadi said.

The application of an acceptable profit margin would close the door to price increases on the back of the more expensive dollar, he added. “They will be obliged to provide documents to certify the date of purchase and hence the dollar exchange rate,” Abu Shadi said of merchants.

Consumers will know the average prices of products and traders will be committed to apply the regulations, otherwise they will be subject to penalties. “It is a politically important decision, and the government should go on to control the markets with the different tools given by the law,” he said.

He added that the government should also activate the public-sector outlets covering between 20 to 25 per cent of the total in order to balance the market. “There are 3,000 cooperatives throughout the country which should be supported to provide a good service to consumers and help to reduce the private sector’s dominance of the market,” Abu Shadi explained.

Moreover, the legislation should be changed to cope with the current situation. Penalties should be increased to include prison sentences in cases of violating the regulations, as are applied in other countries.

However, Abu Shadi said the formation of the new committee was against the law which defines the Ministry of Supply and Internal Trade as the responsible authority for market price control.

The cabinet’s decision was not welcomed by some business organisations. The Giza Chamber of Commerce announced its concern at the establishment of the committee, saying the cabinet decision was “a step backwards” for the economy since it could “cause a huge crisis” in the coming period and the creation of a parallel market.  

Some experts also had doubts about the cabinet’s decision. Assem Abdel-Atti, head of the Egyptian Centre for Transparency and Anti-Corruption, an NGO, said the government’s interference in prices would have a negative impact on the market, leading to a state of disorder. 

He said it would be difficult to set a product price or to define a profit margin for each commodity since prices differed according to quality. For example, there were almost ten categories of rice, each having its own price, he said. 

According to Abdel-Atti the move would result in having two prices or more for the same product. “Prices should be left to supply and demand, as per Egypt’s commitments to the World Trade Organisation,” Abdel-Atti added.

Another negative impact of the move was that such measures would not attract investors who would prefer to invest in free markets, he said. 

Abu Shadi defended the decision, however. “These internal trade procedures won’t affect investors whose projects are mainly established in the free industrial zones and are completely excluded from market regulations except for health and security procedures,” he said.

The new committee will include the ministers of finance, investment, trade and industry, and supply and the head of the national security bureau as well as representatives from the Consumer Protection Agency, the ministry of defence and the Egyptian Competition Authority.

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