In December 2015, Minister of Industry and Trade Tarek Kabil issued a decree that was published in Egypt’s official gazette, Al-Waqa’ia Al-Masriya, which said only foreign factories registered in the record of the General Organisation for Export and Import Control (GOEIC) will be allowed to export to Egypt. This was put into effect in March 2016 to regulate the process of importing goods into Egypt as a means of encouraging local production to reduce foreign competition and improve the foreign exchange reserve. Thus, the ministry put some requirements that consist of the registration of foreign manufacturers at GOEIC, and it increased the import customs duty on numerous imported goods, where President Abdel Fattah Al-Sisi issued a decree to raise customs tariffs on some imported goods in December 2016. Furthermore, the ministry obliged the importer to attest import commercial invoices and adopting a policy of “cash against documents”.
Furthermore, on 3 June, Minister of Trade and Industry Tarek Kabil issued a decision to regulate imports and stop the entry of low-quality imported goods to Egypt.
Kabil said that the decision also aims to stimulate injecting more investments into the national industry and to protect domestic production from the unfair competition with low-quality imported goods. Kabil noted that the decision came after consultation with the Federation of Egyptian Chambers of Commerce (FEDCOC).
The minister explained that the decision included a number of new controls on the facilities allowed to conduct importation. These include raising the minimum capital to enlist individual importers from EGP 10,000 to EGP 500,000. The minimum threshold for individual companies and limited companies was also lifted from EGP 15,000 to EGP 2m. Joint-stock import companies must now have a capital of at least EGP 5m.
Moreover, the Importers Record Law saw the introduction of a new condition on the minimum limit of doing business.
Moreover, individuals seeking enlistment on the registry must prove previous expertise and seriousness. The insurance deposit was increased from EGP 3,000 to EGP 50,000 for individuals and EGP 200,000 for legal entities.
The new decision gives import cardholders a period of six months to adjust the capital and insurance to remain on the importers registry. Kabil also stipulated that to be enlisted, the cardholder must have completed a training course to ensure having enough experience.
The new amendment also gives the Ministry of Industry and Trade the authority to take temporary measures, such as suspending violating importers for a period of up to two years in case of harming the health of consumers or violating intellectual property.
These amendments directly address foreign manufacturers, their authorised distributors or companies owning the manufacturer products’ trademarks, compelling them to use a legal representative or an agent to register with the GOEIC to grant products—such as cosmetics, furniture, shoes, motorcycles, or food—entry into the Egyptian market for trade. The resolution has specified the registration’s deadline by giving these foreign manufacturers a two-month notice period. After March 2016, goods that stem from a non-registered source were denied entry into the Egyptian market.
EU, US, and others unwelcome the decree
Meanwhile, newly adopted Egyptian policies have been perceived by many international actors, such as European Union (EU), as unfriendly.
In July 2016, the EU demanded to lift the import restrictions that were set in motion by the Egyptian government. James Moran, the former EU ambassador to Egypt, previously told Daily News Egypt that the EU has held some meetings with the World Trade Organisation (WTO) to discuss the negative results of the new restrictions as they restrict trade between the two parties.
“We held different meetings with Egypt’s Ministry of Industry and Trade in an effort to convince the Egyptian side to cancel these restrictions. The new measures will negatively affect not only foreign investments but also the European exporters and the Egyptian importers,” Moran said. “European factories are facing many difficulties because they are unable to get the registration licence,” he added.
Egypt’s policies as the solution to its foreign currency exchange crisis, besides European exports, are hugely affected by the restrictions as factories claim they are unable to get the registration licence from the GOEIC. The Egyptian side, however, believes they have the right to protect the Egyptian economy by all measures, especially since these measures are aligned with the WTO regulations on trade, according to Moran.
Moran has made numerous statements regarding this issue. He has claimed that the attempt to address the new situation is now on a bilateral level, but the EU will seek assistance from the WTO if both parties are unable to reconcile, which will be expected to effectively disrupt the trade flow and damage business interests.
The EU and Egypt have bilateral trade, which has increased significantly from €11.8bn in 2004 to a peak of €23.9bn in 2012 after the signing of the Association Agreement (partnership agreement), which came into force in 2004, establishing a free trade agreement over a 12-year transitional period. From the European side, there is a general feeling of discontent.
This might not only be exclusive to the EU, but might also affect Turkey, China, and the United States, all of which have announced an unwelcoming stance towards these policies.
Former head of the Importers Division at the Cairo Chamber of Commerce Ahmed Shiha said the proposed establishment of the record, which requires the registering of foreign factories that export to the Egyptian market, violates the World Trade Organisations (WTO) agreements and import and export law 118/1975, which has been in effect for 40 years.
Shiha said the new decree to control imports will in effect circumvent laws that regulate trade and will increase the risk of monopoly. Shiha contended that Kabil is unfamiliar with the laws his declaration will render ineffective. He further expressed his fear that other countries would institute a similar policy on Egyptian exports, which could lead to an imbalance in trade exchange.
“Egyptians products do not see enough domestic consumption, and we cannot protect the local product because we do not have an industry,” Shiha said. “Even Egyptian products depend on imports of raw materials from abroad.”
Local manufacturers welcome the decision
In addition, local manufacturers have welcomed the restriction procedures taken by the ministry, as they were unable to compete with importers who were avoiding taxes by putting artificially low prices on customs bills, consequently enabling them to sell at unnaturally low prices. The policies, thus, were aimed not only to ease the foreign currency reserves policy, but also to boost the local production and consequently decrease unemployment, which will eventually save the economy.
Moreover, Mohammed El-Bahi, a board member of the Federation of Egyptian Industries (FEI), also noted that the decision will boost foreign currency and avoid reductions of foreign currency values by the Central Bank of Egypt (CBE).
While, Hamdy El-Naggar, a representative of the General Division of Importers at FEDCOC said that the decision itself is good and will lead junior importers to exit the market as the restricting policies will seize the importers who have import licences, but their imports have low quality—and some, to import poor materials to sell at a higher price in the local market, manipulate their paperwork that guarantees a quality control check on imports.
El-Naggar added that the restricted policies may decrease the import bill by $2bn by the end of the current year.
Reducing the trade deficit is the reason
After adopting these policies and entering force in March 2016, foreign currency reserves had stood at $16.477bn at the end of January, down from $36bn in 2010. Since the 25 January Revolution in 2011, Egypt’s main foreign currency source, tourism, and foreign direct investment were drained. This problem was aggravated further as a result of Egypt’s heavy reliance on imports, with a value of almost $61bn in 2014/15, compared to exports worth slightly over $22bn and a trade deficit widening to $38.7bn in fiscal year (FY) 2014/15 compared to $34bn a year earlier. While the government has tried to secure loans from sources such as the World Bank and the African Development Bank, President Abdel Fattah Al-Sisi, and his office have introduced policies of rationalising imports to alleviate the foreign currency reserves crisis by introducing local alternatives to non-essential goods.
Due to the application of these policies, the Ministry of Industry and Trade announced a decline in imports during the first quarter (Q1) of FY 2016/2017 by $810m to reach $13.93bn, down from $14.74bn in Q1 2015/2016.
Hamdy El-Naggar said that the decision may ultimately lead to higher prices and could potentially harm local production rather than promote it. However, now, having to face no competition, the incentive for ameliorating quality and decreasing prices is almost not existent, which creates a vacuum for monopolists and corrupt market practices.
Further, El-Naggar noted that these polices may increase smuggling of very poor products. He further noted that the cash insurance deposit, increased in the last restrictions put by the trade minister from EGP 3,000 to EGP 50,000 for individuals and EGP 200,000 for legal entities, will be very hard for the junior importers to pay.
He pointed out that the junior importer is very important because they serve short and medium enterprises (SMEs) that seek export by providing them imported raw materials at affordable prices.
“We called the ministry to provide acceptable terms. Furthermore, total cash insurance is the impossible condition,” said El-Naggar. “In addition, the letter of guarantee deducts 100% of the value, which means cash payment and which put more burden on the importers.”
We have also requested the ministry to extend the period of six months to adjust the capital and insurance to remain on the importers registry to be not less than one year.
About 30% of importers will exit the market because of the new controls on executive regulation of importers’ record, according to El-Naggar.
Other importers criticised the decision, noting that the decision may hurt future foreign investment opportunities, as one prominent model of foreign investment in Egypt will be compromised. Protectionist policies on imports will disable international brands and companies from entering the Egyptian market, which not only blocks their chance of exporting to Egypt, but also—and more importantly—blocks Egypt’s ability to attract potential investors.
Possibility of reciprocity
Whether these policies will help improve the foreign currency exchange, the problem is still unclear. As far as trade is concerned, Egypt’s imports from the EU (mainly heavy transportation equipment, fuel, mining products, chemicals, and agriculture goods) and the United States (mainly maize, wheat, soybean oil, and pharmaceutical products) have decreased by 8% and 40% respectively in March 2016, compared to March 2015. These countries may increase their import measurements from Egypt to seize Egypt’s exports.
The list of imports that have decreased includes primary goods that are considered not only essential to Egyptian local production, but also consumption. Therefore, if Egypt fails to replace these products on a local level, imports will inevitably rise again.