Sunday,22 July, 2018
Current issue | Issue 1125, 6 - 12 December 2012
Sunday,22 July, 2018
Issue 1125, 6 - 12 December 2012

Ahram Weekly

Shielding the market

In a move to protect the local industry, the government has imposed temporary tariffs on steel and sugar imports. Mona El-Fiqi sounds out reactions

Al-Ahram Weekly

Last week, Egypt’s minister of industry and foreign trade, Hatem Saleh, announced that protective tariffs would temporarily be applied on rebar and coils steel as well as sugar imports to protect local production. Rebar and coils steel will be subject to a 6.8 per cent duty and a minimum of LE299 per tonne for 200 days (roughly seven months). And a 20 per cent duty will be imposed on white sugar and 17 per cent on raw sugar, also for 200 days.
In a press release, Saleh said that the government was devoted to protecting local industries from foreign counterparts in accordance with World Trade Organisation (WTO) and international regulations.
The move came in response to complaints from local steel and sugar producers that duty free imports are harming their industries.
The Chamber of Metallurgical Industries (CMI) at the Federation of Egyptian Industries had presented a complaint to the Anti-Dumping Authority at the end of September stating that cheap imported steel is flooding the domestic market, causing great harm. The CMI represents more than 25 local steel factories.
Meanwhile, government-owned sugar companies also complained that the private sector imported 650,000 tonnes of sugar during the period of July to November, causing the accumulation of some 520,000 tonnes of locally produced sugar in company warehouses.
In an attempt to sell these large amounts of sugar held in storage, public companies reduced the price of sugar to LE3,750 per tonne. But imported sugar remains cheaper, which is why they asked for the government to intervene.
A specialised committee is expected to soon start investigations into the complaints presented by steel and sugar producers. A final report will be submitted to the minister of industry and trade before the end of the 200-day tariff period. According to the results of the investigation, the minister will take a decision either to extend or halt additional duties.
The CMI memo that requested imposing tariffs on steel imports explained that many countries implement similar procedures to protect their local industries. It said that the US imposes a 20 per cent tariff on steel imports, Turkey 15 per cent and Algeria 12 per cent.
According Mohamed Hanafi, head of the CMI, the sector’s losses amounted to LE220 million last year. “Domestically, the cost price is higher due to the increase in the price of electricity and natural gas by 30 per cent in 2012 in addition to a 50 per cent increase in wages following repetitive strikes,” Hanafi said.
According to Hanafi, the rate of 6.8 per cent in customs duties is not enough. “Our request was to raise it by 10 to 15 per cent in order to cover losses and start to achieve profits, but anyway it is a good start,” Hanafi explained. In 2011/2012, total steel imports registered 641,000 tonnes at a value of $449 million, representing 10 per cent of total annual local consumption (around 6.5 million tonnes).
Hanafi added that the government should protect local industries and take advantage of the exceptions that it is allowed by international commitments for economies undergoing hardship, which is the case for Egypt after the revolution.
Within that framework Hanafi said that the government is considering imposing additional tariffs on 1,200 imported items for the same reason. He commended the move because it would help reduce Egypt’s total imports and save foreign currency for strategic commodities such as wheat.
But although the government’s decision has satisfied steel producers, experts believe it will have a negative impact on local markets. Ahmed Ghoneim, professor of economics at Cairo University, told Al-Ahram Weekly that although the decision is theoretically sound, since the government has the right to impose protective duties on imports in dumping cases, according to WTO regulations, it is against the public interest. “It is a bad decision at the wrong time. Even if we have a balance of payments deficit, the government should not take this step since it will lead to a notable increase of prices and a higher inflation rate, which is very dangerous for Egypt’s economy,” Ghoneim said.
In fact, only few days following the decision, steel factories announced new prices for locally produced steel, moving it up from LE4,000 per tonne to an average of LE4,200 to LE4,300 per tonne compared to $625 per tonne (equivalent to LE3,810) for imported steel. Producers said that even after the addition of the new duties imported steel would still be cheaper.
Taking such decisions, according to Ghoneim, means that the government has failed to boost local industries through the provision of incentives. “It is clear that the government is facing a state of bankruptcy in policies,” he said.
A businessman who preferred to be anonymous is also against the tariff decision, saying: “I admit that local industry is fragile and is currently facing a lot of problems, such as bureaucracy, lack of security, and instability of economic policies. However, the government should work on creating a more friendly investment environment rather than imposing tariffs.” If it is necessary to save foreign currency, the government could stop importing luxurious commodities such as ice cream being sold at LE150 per kilo in local markets, according to the businessman.
Experts said the government should care for consumers as well as producers when taking decisions. Consumers always pay the price. However, Hisham Al-Kwesni, a civil engineer, asserted that a seven per cent increase in steel prices is not a big deal and that it would not affect the total price of a building unit. For example, a housing unit of 70 metre needs 2.5 tonnes of steel costing LE11,000 of the total price of the unit averaging LE150,000.
Al-Kwesni explained that steel prices fluctuated during the past few years, yet that did not harm the prices of housing units. In 2008, a tonne of steel rebar reached LE9,000, while in 2010 it was down to LE3,000 per tonne. Currently it is LE4,500 per tonne.
As for sugar, the government is considering a halt on importing sugar used for ration card beneficiaries to help in marketing locally produced sugar.
Imposing tariffs to protect local industry, according to experts, is practised in most developed countries. They permit the entrance of certain amounts to cover local consumption and any additional amounts are subject to 100 per cent duties.
Sugar factories complain that continuing to import duty free sugar will harm the next cultivating season since the four companies for sugar beet (Delta, Fayoum, Daqahliya and Nobariya) have already contracted 400,000 farmers to cultivate 425,000 feddans this year.
Egypt’s total annual production of sugar is estimated at two million tonnes, of which one million is produced from sugar cane and the remainder from sugar beet. Local consumption is three million tonnes, of which 1.4 million tonnes are distributed at a subsidised price for ration card beneficiaries. The gap between production and consumption is covered by imports.

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