After the Central Bank of Egypt (CBE) instituted new regulations for importers, Deputy Governor of the Central Bank of Egypt (CBE) Gamal Negm said Egypt suffers from an economic market saturated with foreign imports that are stifling its domestic economic opportunity.
The new policies that the Central Bank of Egypt’s (CBE) introduced last week attempt to reduce fraudulent import valuations and to reinforce the national economy by strengthening the competitiveness of domestic products against foreign imports. The CBE issued instructions to banks to regulate import operations on Monday.
Those instructions, detailing the parameters of the new procedure, mandate that only those imports where foreign financial institutions issue collection documents directly to banks operating in Egypt will be allowed, while collection documents that are provided by the importer to the Egyptian bank will be declined.
The CBE’s instructions also include obliging banks to acquire a 100% cash margin on letters of credit, which encourages the funding of commodities for commercial companies or governmental bodies, instead of the 50% that was applied before.
The CBE excluded the import of medicines, vaccines and related chemical materials, and baby formula from the cash margin.
The CBEfuther disallowed the use of credit limits authorised from banks for importers in paying the cash margin stated in these new instructions, including credit facilitations insured by securities or commercial documents.
The CBE held a conference on Thursday to explain the reasons behind these decisions.
According to Negm, the CBE aims to restrict consumption imports, which negatively affect local industries’ growth opportunities. Negm drew a correlation between the closures of factories in Egypt and the saturation of foreign imports in the Egyptian market.
“Egypt has turned into a kiosk for imported goods,” he said.
He explained that import operations continue to increase, noting that imports from a certain Asian country have been increasing by 10% to 15% every year, and jumped up by 70% during one instance in the last fiscal year (2014/2015).
“Egypt imported $3.1857bn worth of passenger cars in the last fiscal year, compared to $1.4635bn in 2013/2014 ,” he added.
He further estimated that the total value of imports made through banks during the last fiscal year amounted to $60bn, while the total value of total imports recorded $76bn, noting that $16bn of imports were conducted through other means. Egypt’s total exports were valued at $22bn during this same period.
Negm explained that some imports do not go through banks, where shipments of less than $5,000 do not require bank documents. Moreover, personal imports brought into the country by Egyptians who have lived abroad do not require documents.
“The CBE is trying to reduce non-essential imports as much as possible, after the increase in the balance deficit, along with the state budget deficit, which reached EGP 279bn at the end of the last fiscal year, compared to EGP 255.439bn in 2013/2014,” he noted.
Negm explained that importers receive an original of the importing documents, as well as four copies. In the past, cases of fraud have occurred when importers asked five banks at once for the estimated security, which artificially boosted demand for the dollar.
“Hence, the CBE decided that these documents will be circulated between two correspondent banks without involving individual importers.”
He added that the latest decision also aims to reduce the number of import operations.
“Instead of five shipments for every importer, they should be limited to two,” he added.
The CBE’s decisions will cut down on granting temporary credit facilities in foreign exchange to clients who do not have the foreign exchange resources. According to Negm, an automated system between the CBE and the Customs Authority will be activated within two months to regulate importing.
Negm ruled out the possibility of establishing a commission rate on currency for importers of non-essential goods. “The state’s resources are limited, and must be used to cover necessities,” he noted.
He added that no decisions will be taken to amend the daily cap for deposits of $10,000 a day and monthly cap of $50,000 a month until Thursday.