Banks operating in the Egyptian market are waiting for the signal from the Central Bank of Egypt (CBE) to include the tourism sector in the initiative to support industry, which would increase its value to EGP 160bn.
Prime Minister Mostafa Madbouly directed that the tourism sector be included in the initiative, which currently includes the industrial and agricultural sectors, in the framework of expanding the base of beneficiaries of this initiative.
Madbouly and the Minister of Finance have agreed to allocate EGP 10bn for the tourism sector as part of this initiative, bringing the total financing to EGP 160bn for the targeted productive sectors, which would help them increase their business volume and expand production.
Last January, the Cabinet approved the general framework of the initiative to support the industrial and agricultural sectors. It aims to reduce the interest rate on loans provided to the two sectors, within the framework of continuous support for them and their activities.
According to the initiative, EGP 150bn has been allocated, including EGP 140bn to finance working capital operations, and EGP 10bn to finance the purchase of capital goods, at a decreasing interest rate of 11%, provided that the Ministry of Finance bears the difference in the interest rate, and the duration of the initiative is five years.
The initiative’s goals
Minister of Finance Mohamed Maait said that this initiative will be implemented despite the harsh global economic challenges. He pointed out that the state treasury will bear more than EGP 13bn annually and the interest rate difference.
Maait added that the government will continue to implement this initiative in the budget for the current fiscal year, despite the 2% hike in interest rates, which contributes to encouraging investors to expand production, achieve the strategic goals of the state by maximizing production capabilities, meet the needs of local demand limit imports, and expand the base of exports in order to reach the dream of $100bn exports. This is expected to strengthen the structure of the national economy, sustain growth rates, push production, and provide more job opportunities.
The Minister of Finance affirmed the government’s keenness to expand the base of beneficiaries of the initiative by setting a maximum of EGP 75m for financing one company, and EGP 112.5m for multilateral entities.
He pointed out that this initiative applies to new and renewable energy activities, free zone factories, and agricultural cooperative societies. He also added that it is prohibited to use these granted credit facilities to pay any debts due to the banking sector, in order to ensure achieving the desired goals so that this initiative has effective results.
Regulations of industry initiative
The CBE issued the regulations of the new initiative before including the tourism sector. According to the Central Bank’s controls, this initiative is directed at financing companies and establishments from the private sector operating in industrial and agricultural activities to support the productive sectors at a reduced return rate of 11% decreasing, according to the determinants received from the Ministry of Finance.
These determinants included that the total value of the initiative in local currency is EGP 150bn, divided into EGP 140bn to finance working capital operations, and EGP 10bn to finance the purchase of machinery and equipment, and the value of the initiative decreases by 20% every year.
It also included that the maximum duration of the initiative be five years, and if the financing is extended for longer periods after the end of the five years, the customer will bear the full financing cost.
Also, the maximum amount of financing for one customer within the framework of the initiative is EGP 75m, and for one customer and related parties it is EGP 112.5m. This amount includes working capital financing and the purchase of machinery and equipment in light of the volume of business and the regulating banking rules.
Beneficiaries are prohibited from using the credit facilities granted within the framework of this initiative to pay any other debts they owe to the banking sector. In addition to that, the instructions of CBE specified the interest rate considered the basis for calculating the compensation of banks for the interest rate difference at the credit and discount rate of decreasing 1%.
Companies that receive facilities within the framework of the initiative have a reduced return rate of 11%, provided that the Ministry of Finance bears the difference in the return rate, and the compensation is paid to the banks participating in the initiative on a quarterly basis.
In the case of a scheduling or settlement of the credit facilities granted within the initiative the return rate is adjusted according to the bank’s discretion and is excluded from the initiative, and the Ministry of Finance does not bear the delayed returns calculated on the customer facilities within the framework of the initiative.
Each bank participating in the initiative must obtain the approval of the customer benefiting from the initiative to share the data of the facilities granted to him within the framework of the initiative with the financing sector at the Ministry of Finance.
The bank whose accounts are not audited by the Central Auditing Organization is also obligated to issue a certificate on a quarterly basis of the value of compensation for the price difference.
The bank is also obligated to provide the banking operations sector at CBE with the value of the compensation required for the interest rate difference during the first week of the month following the end of the quarterly period for which the compensation is due, provided that the disbursement takes place immediately after receiving the certificate referred to in the previous item.
Factories would work at full capacity
Mohamed Abdel-Aal, a banking expert, believes that this initiative is a positive move on the part of the government, which comes with a heavy cost from the interest difference.
He explained that the purpose of the initiative is to reduce financing costs in favor of the targeted economic sectors and activities, which will help factories return to work at full capacity and ensure continued levels of employment and operation.
The reaction of the beneficiaries of this initiative will be to focus on improving quality and reducing operating expenses, so that they can increase competition opportunities in global markets, if they want to increase export numbers, and produce import alternatives, especially the intermediate production requirements needed to localize the industry.
Abdel Aal indicated that it is very important for manufacturers and producers of goods and services to be convinced that their top market, which guarantees the continuity of their activities now and in the future, is the Egyptian market, which includes more than 100 million consumers. If the impact of such initiatives is not tangible, the demand derived from this market could gradually dry up, and at that time no initiatives to revitalize it will be useful, and even winners will be losers.