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One On One: Rachid details Trade Ministry's stimulus package

CAIRO: While the government s recently announced LE 15 billion stimulus package will weigh on the budget deficit, the pressing goal remains to be supporting growth, said Trade Minister Rachid Mohamed Rachid. Everyone is willing to sacrifice an increase in budget deficit to stimulate growth, Rachid told Daily News Egypt in a phone interview. The …

CAIRO: While the government s recently announced LE 15 billion stimulus package will weigh on the budget deficit, the pressing goal remains to be supporting growth, said Trade Minister Rachid Mohamed Rachid.

Everyone is willing to sacrifice an increase in budget deficit to stimulate growth, Rachid told Daily News Egypt in a phone interview.

The Cabinet approved last week a draft bill pouring in LE 13 billion to the state budget as part of the fiscal stimulus package. The bill will be referred to Parliament for review and ratification.

We expect it to pass in Parliament. This means it will raise the budget deficit and that the target set by the Ministry of Finance in fiscal year 2008/09 will not be met, Rachid added.

The Egyptian government s budget deficit was equivalent to 8.3 percent of gross domestic product (GDP) in the July-September quarter, above the government s 6.9 percent target for this fiscal year, according to figures from the Ministry of Finance. This compares to 7.8 percent of GDP in the first quarter of the 2007/8 fiscal year.

The government s LE 15 billion economic stimulus package is expected to hike the budget deficit to at least 7.7 percent in the current fiscal year.

As part of the LE 15 billion stimulus plan, the Trade Ministry promised a LE 7 billion support package for industries and exporters, including new financing for technology transfer and industrial training as well as modernization.

Under these measures, the government has frozen electricity and natural gas prices for all factories until the end of 2009 – costing about LE 300 million – to help industry cope with the world financial crisis. The ministry is also waiving for up to one year payments due for industrial land during 2009.

The package will allocate LE 3.15 billion to maintaining presence of Egyptian exports to traditional markets and securing entry into new ones to combat fallouts of the global economic crisis.

Minister Rachid pointed out that Egyptian exports would fall in the current 2008/09 fiscal year compared to a year earlier, as economic recession threatens markets in Europe and the United States without revealing specific figures.

Sixty percent of our exports go to the United States and Europe, he said. Exports to those markets could drop in terms of price and quantity.

The ministry said that exports surged about 30 percent last fiscal year. Last [fiscal] year, exports amounted to $28 billion.with non-oil exports hitting $14.9 billion, Rachid clarified. We expect this figure to be under pressure this year.

Over the last four years, exports grew at a rate between 25-30 percent, but we will not see the same rate this year amid the current crisis, he added. We will see a drop in our export growth rate because of pressure we re having on prices of commodities as well as a recession in Europe and the US.

Rachid said in early November he hoped Egyptian exports could still grow from 20 percent to 25 percent in the current fiscal year, which ends in June. Since then, however, Europe has officially fallen into recession and the US economy has suffered thousands more layoffs and the biggest retail sales dip on record.

It is difficult to estimate a specific [percentage] for exports growth this fiscal year because figures change almost every week. We see some sectors dropping 20 percent, others 10 percent. Prices are dropping across different sectors, and we have not yet been able to estimate drop in quantities, said Rachid.

The minister marked the coming Christmas shopping season in Europe and the US as a benchmark for Egypt s exports growth. Everybody is holding their breath to see how this will unfold in the next weeks. If consumption drops significantly, then it s bad news for everybody. But if it comes within expectations, then we re better off.

The Cabinet earmarked last week LE 2 billion to cover the trade ministry s LE 7 billion stimulus package, in addition to LE 5 billion from the ministry s budget.

Rachid explained the package will include measures such as helping companies with storage and distribution costs and spending more to develop industrial zones. The ministry will allow all new factories set up by the end of 2009 to phase the cost of installing natural gas and electricity, and will speed up licensing procedures. We plan to spend more on infrastructure of industrial zones.

As part of the package, Egypt will also boost tax rebates for some exporters by 50 percent of their previous level, exempt some companies from sales taxes, and cut customs duties.

A bulk of the money is directed to support the tax rebate system to help exporters get back [on track], Rachid stated.

Customs duties for some capital goods will be reduced to zero from between 2 percent and 5 percent currently. A list of eligible goods would be published later this month, he added.

The ministry will also earmark LE 400 million to support investments. We are working very hard to make opportunities for investment available, the minister said.

An estimated 5 million square meters will be allocated for various domestic market developments such as establishment of storage and cooling facilities as well as wholesale and part wholesale markets. Two companies will be established to develop land allocated for domestic trade.

Retail is the fastest and cheapest way to create jobs, and [the package] will dedicate large lands to retail, which will in turn boost local consumption and reduce prices, Rachid pointed out.

While several other countries across the globe have come up with different rescue packages to help their economies combat the ongoing global financial turmoil, competitiveness of Egypt s package to attract investors remains to be seen.

Competitiveness depends on ability of our package in totality, Rachid pointed out. The other half will have to come from the monetary policy and the central bank and from performance of banks in Egypt in terms of loans. in terms of availability and cost of funding. This is extremely critical.

The psychological part of the package is very important. It [proves] that the government is taking steps to combat the global economic crisis, he added.

He did not rule out the possibility of revising the package in the future and introducing new measures to stimulate economic growth. We have seen it in big economies. Packages announced continue to be revised and re-announced. But I hope this one will do it.

Investors’ initial reaction to the package was a sigh of relief, said Rachid, “[We] reduced cost and cash burden on them.

The reaction the ministry is looking for after announcing its LE 7 billion package, that investors will go ahead with their pre-planned investments and that what Egypt had to offer in the past such as economic growth, [consumer demand], and export potential will continue to attract investors.

Topics: FJP

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