CBE’s interest rate hike to slowdown industrial investments

Daily News Egypt
4 Min Read

Chairperson of the Engineering Export Council of Egypt (EEC) Sherif Al-Sayyad said that the decision of the Central Bank of Egypt (CBE) to hike its interest rates would have a negative impact on the industrial sector.

This is because it hikes the cost of lending by proxy, and an increase in the cost of borrowing would push manufacturers to increase the prices of final products both for the domestic and export markets.

Additionally, it increases freight costs and other elements of the production process, thereby spiking commodity prices. Consequently, many citizens will resort to invest in savings certificates at banks, creating economic depression in the local market.

He explained that the current period will be one of the most difficult periods for industry and manufacturers, accordingly, companies will have to resort to increasing exports to increase their earnings.

For his part, Abdel Rahman Asal — Head of the Industry Committee at the Egyptian Junior Business Association — said that “raising the interest rate in general will not have a positive effect on the industrial sector, as it directs small capital to certificates instead of investing money in the industrial field. It also increases the cost of financing in general.”

He added that “on the other hand, hiking the interest rate would control the value of foreign currency and stabilise the local currency, which would have a positive impact on the sector in general.”

Meanwhile, Ahmad Othman — Former President of the International Council of Small Enterprises — said: “For industrial investment, the interest rate is important for determining the viability of investment. Lower interest rates make it cheaper to borrow. Therefore, lower interest rates tend to encourage business investment. High real interest rates discourage investment.

The Egyptian government should also offset this adverse effect immediately by offering industrial incentives, including lowering the cost of land, tax holidays for new industrial start-ups, as well as lowering interest rates for purchasing industrial equipment, he added.

Mohamed Awaidah — President of the New Cairo Manufacturers Association — stated that the CBE’s decision to raise the interest rate by 2% will no doubt affect local industry and the popularity of some industrial products but will significantly reduce inflation rates in Egypt as a result, decreasing demand for goods and causing a surplus, causing a decrease in demand and prices dropping to normal levels.

With regard to the impact of the decision on industry, he commented that the state should continue its industrial funding initiatives and projects.

“We currently have a golden opportunity to make industry the main locomotive in the Egyptian economy by offering a package of facilities and motivations for the industrial sector, including facilitating financing and licensing procedures as well as the provision of industrial lands and others,” he said.

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