Egypt props up auto, textile industries amid mounting job loss fears

Sherine El Madany
6 Min Read

CAIRO: On fears employers in Egypt would respond to the worst financial crisis since the Great Depression by slashing jobs, the government revealed this week new measures to bolster a number of labor-intensive industries.

However, as a batch of warning signs indicate the world remains trapped in the throes of a sharp economic slowdown, some analysts forecast 2009 will cut a substantial swathe of wreckage through Egypt’s job market.

Trade Minister Rachid Mohamed Rachid unveiled Thursday new incentives to support the country’s automobile and textile industries, two major employers of Egypt’s labor force. These incentives include removing fees on car exports of 2 percent as well as exempting imported car components from customs. The government is also looking into reducing or canceling sales taxes on cars.

As for textiles, Rachid said the government would support the local industry by offering a cash subsidy of LE 150 per qintar of cotton.

“Our main concern is the Egyptian employee. . These measures mainly aim at preserving Egypt’s labor force and reducing any layoffs that could occur amid the global financial crisis, Rachid said. “Labor force is a condition we [stipulated] in return for supporting companies’ exports. Companies that merit financial support on their exports are required to preserve [most of] their labor force.

The ministry, together with the finance ministry, also announced last Wednesday that producers would be exempted from paying taxes on equipment and capital goods. Customs duties for some capital goods are to be reduced to zero from between 2 percent and 5 percent currently.

“These measures aim at pushing wheels of the market forward. We want these companies [autos and textiles] to be cushioned against the global turmoil in order to reduce any layoffs, Rachid pointed out.

The recently announced incentives are part of the government’s LE 15 billion economic stimulus package, which allocates LE 1 billion in exemptions on sales tax on capital goods and LE 1.2 billion in customs reductions on capital and intermediary goods.

While the government is scrambling to find ways to boost investment and spur growth, a deepening global recession forced some companies to axe around 200,000 jobs in 2008, according to government statistics. The unemployment rate stood at 8.5 percent in the third quarter of 2008 alone.

“No doubt the global financial crisis will [take its] toll on the labor force in Egypt and raise unemployment rates, said Hamdy Abdel Azim, business analyst and ex-president of Sadat Academy for Business Administration, citing a slowdown in exports and tourism as the main factors.

“Our exports are hit because the US and Europe have now entered a recession, he explained. “Any reduction in exports negatively impacts production which means that [some] jobs will be lost. The same applies for businesses that work in tourism.

“Plus, real estate and construction markets are also toppling from the economic crisis, which means that not only increases unemployment but also diminishes new job opportunities.

Abdel Azim forecasts that unemployment rate will jump to more than 15 percent in 2009, up from the estimated 10.5 percent in 2008.

Egypt is currently reeling from the global economic meltdown, with two of its biggest sources of foreign currency – tourism and the Suez Canal – showing signs of faltering.

Rachid said Monday Egypt has trimmed its forecast for economic growth to below an annualized 5.2 percent in the first six months of 2009.

According to local reports, the minister said growth would fall below “previous expectations of 5.2 percent due to “sudden variables, adding, “There is no escape from this crushing financial crisis.

One way Abdel Azim suggests could help reduce job-cutting is by reducing prices of commodities produced by Egyptian factories. “Trimming prices will increase demand and spur buying, which could be a way out of this financial crisis.

While minister Rachid said the government was mulling over establishing an unemployment benefits fund, Abdel Azim finds it a quick-fix solution to a long-term problem. “It’s a temporary pain-killer. Besides, it requires government financing, and the state budget does not have enough resources for it.

While the global economic slump has already produced the worst year of layoffs since 2003 in the US, Rachid is optimistic employers in Egypt will not flare up similar heavy job-cutting

“Six, seven months ago, the main problem facing several employers was lack of trained labor force, which drove the ministry to embark on training programs, he pointed out. “Now, these companies realize that it will not be easy to layoff a worker who received training because they know how difficult it was to find good workers before.

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