HP: Main + Economy
The recent decree [No 25 of 2016] of President Abdel-Fattah al-Sisi to raise customs tariffs on hundreds of imported luxury goods which have a local substitute has led to both controversy and apprehension in the Egyptian market.
The decision has been hailed by many economists and analysts as a positive step towards reviving the ailing economy, especially in decreasing the budget deficit and supporting national industry. But the Division of Importers at the Cairo Chamber of Commerce is harshly critical of the decree which they claim will only cause price rises.
At the Akhbar al-Youm economic conference held in October 2015 the Investors’ Union highlighted the number of imported goods flooding the local markets and for which locally made substitutes, very similar in terms of quality and price, exist. They stressed the negative effect of imports on the Egyptian industry, especially in the current period of economic downturn.
Now that customs tariffs have been raised the government is watching closely the effect on the local market, says Minister of Industry, Trade, and Small Industries Tareq Qabil. According to Mr Qabil, the increase in customs ranges between 10 and 15 per cent and, so far, no increase in prices has been recorded; on the contrary, some companies have resorted to reducing their prices in order to boost sales.
“The government’s policy,” he said, “is to promote locally made products and conduct a campaign on the importance of buying locally manufactured goods. All government establishments have been instructed to buy their supplies from among locally made products.”
Saïd Abdel-Khaleq, former deputy to the Minister of Industry and Trade, called the decree raising customs tariffs on imported goods ‘a very wise decision’. In fact, he said, it should have been issued much earlier given that Egypt has a huge shortage of foreign currency and cannot thus cover increasing import costs.
“The government has no other option but to limit imports,” Dr Abdel-Khaleq says, “hence, the increase in customs tariffs.” He sees the angry reaction of importers as a predictable factional demand to which the State must not give in. “Given the tough economic times, these importers should focus on importing direly needed instead of luxury goods,” he says. “The increase in imports in recent years has resulted in a negative trade balance. Egypt suffers a trade deficit of some USD32 billion; increased importation means that foreign currency is in high demand, leading to soaring dollar prices against the Egyptian Pound.”
Watani asked Dr Abdel-Khaleq if the flood of cheap foreign goods on the market, especially from China, were not considered dumping—a practice not condoned by international trade laws?
“We must admit that goods from countries such as China and Korea are characterised by very low production costs, and therefore very cheap prices. Egyptian industrialists must adopt a similar strategy and work on minimising production costs without compromising the quality of the produced goods,” he replied. “Producers who offer cheap products of low quality thinking that Egyptians will compromise quality for low prices are wrong. Many dumping cases do exist on the market, and there is an anti-dumping apparatus in the Ministry of Industry and Trade, but the apparatus can adopt anti-dumping measures only if a complaint is officially filed complete with documents that prove dumping as defined by the World Trade Organisation.”
Is this the right way?
In total agreement with Dr Abdel-Khaleq is economics expert Khaled al-Shafei who vocally applauds the rise in customs tariffs on luxury goods because it limits the drain of foreign currency. “The protests of importers are temporary,” he says. “The government must focus on the country’s best interest, not on individual benefits. The main goal at this point in time is to revive the ailing economy and get out of the current impasse. The recent decree is a step in the right direction.”
Other economists and financiers do not agree, however. Enayat al-Naggar, a consultant in financing and investment, concedes that imported luxury goods flood the local market but wonders if raising customs tariffs on such goods is the right way to save Egyptian industry.
“We must create modern industries that can compete on the international markets and that can drive out low-quality products from the Egyptian market,” Dr Naggar says. “We must also find a solution to get the wheels rolling in more than 1,000 factories that closed in the aftermath of the 2011 Arab Spring when the economy ground to a stop.”
She says that the recent decree has not yet led to any positive results. Rather, an immediate rise in prices has taken place. “I am a staunch believer in market economy where the role of the State is confined to planning and management, not running factories or trifling with market mechanics,” Dr Naggar says. “The private sector, for its part, must assume responsibility and play its part in producing high quality goods that can compete on the market, cut costs, and boost the economy.”
Egypt’s importers are depicting the matter as a conflict between them and Egyptian industrialists. The Importers Division at the Cairo Chamber of Commerce is hurling accusations at the Industries Union for lobbying to pressure the government to halt imports instead of working to cut costs and produce more efficiently. Ahmed Shiha, head of Importers Division warns of huge increase in prices and shortage of essential goods. The lack of competition with imported goods, Mr Shiha says, will inevitably lead local factories to produce low quality goods for which consumers, having no other alternative, will be forced to pay high prices.
Ashraf Hilal, head of the household products division, agrees with Mr Shiha. Raising customs tariffs up to 40 per cent, he says, implies a 25 per cent increase in the price of goods for the end consumer. “The average citizen will pay a hefty price for such decisions,” he says. The household products category includes items such as cutlery, glassware, mugs, cooking pans, etc. The prices of these items will rise greatly, overloading the average citizen during these hard economic times.
The chambers of commerce have issued statements expressing their displeasure with the recent economic decisions on the grounds that they will lead to a 25 per cent hike in prices and allow for market monopoly.
The list of imports affected by the increase in customs tariffs includes hundreds of products labelled as “luxury goods”. The customs tariffs on these goods were raised to 20 – 40 per cent, while in the past, they ranged between 10 – 30 per cent These items include nuts, cosmetics, shaving products, hair accessories, men’s suits, air conditioners, refrigerators, household utensils and kitchenware, watches, pens, lighters, exotic fruits, pet foods, and equestrian gear.
Not reduced but rerouted
Industrialist and politician Mounir Fakhry Abdel-Nour reminds Egypt took similar measures when faced with the same problems during the 1980s and late 1990s. At the time this worked to restrict imports and foreign currency depletion, and resulted in economic growth. “Today,” he says, “I believe raising customs tariffs will not pay off since 80 per cent of Egyptian trade takes place with countries that have free trade agreements with Egypt. If the cost of certain products increases owing to the rise in tariffs, the obvious alternative would be to import products from States exempt from custom duties under free trade agreements, which means that imports would not be reduced; they will only be rerouted.
9 March 2016