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Thursday, 24 September 2020

Egypt: Plans to stimulate consumption

A new initiative has been launched to encourage people to buy local products at reduced prices and boost economic growth

Safeya Mounir , Friday 7 Aug 2020
Plans to stimulate consumption
The government is betting on consumer spending to boost the economy (photo: Reuters)
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A new initiative to alleviate the economic burdens on many people and encourage the purchase of locally made products was launched in July. Dubbed “Not Expensive for You”, the presidential initiative is part of state plans to counter the repercussions of the Covid-19 pandemic and promote financial inclusion.

The campaign encourages people across the social and economic spectrum to consume local products in order to boost GDP growth. It also targets factories to increase production and generate more job opportunities.

The initiative offers a 20 per cent reduction on household appliances, ready-made garments, leather products, furniture, and handicrafts to purchasers. The items offered for sale, numbered at 4,231 products, are available for purchase via e-payment on the initiative’s website.

They can be paid for in installments in partnership with Egyptian banks participating in the initiative and consumer-finance companies.

Some 1,178 merchants are selling the products included in the initiative after they registered with the Egyptian Federation of Industries and the Egyptian Federation of Chambers of Commerce.

Ration cardholders can receive extra reductions to a maximum of LE200 per person depending on the number of family members on each card and a maximum of LE1,000 per family. Some 22 million people have ration cards, and the state has decided to shoulder the LE12.25 billion needed to support extra reductions.

Mohamed Maait, the minister of finance, said he expected people would spend LE120 billion on the initiative’s products. He added that more jobs would be created through the initiative when factories increased their production. The initiative would also help to revive the economy after the economic slump due to the Covid-19 pandemic.

More investments will be pumped in as a result of increased demand for local products, Maait added.

Various procedures had been adopted to ensure the success of the initiative, and these would be reviewed to see whether it had achieved its stated targets to make available products to the different economic groups in the country, Maait stated.

Mona Bedeir, a macroeconomic analyst with Prime Holding, a consultancy, said that since the floatation of the Egyptian pound in November 2016 demand in the household consumption sector had retreated, as had increases in salaries.

The initiative would reflect positively on consumption, though it was unclear by how much this would increase, she added.

People’s consumption was further reduced due to the coronavirus, Bedeir said, particularly with cuts and temporary stoppages of salaries in many sectors, including hospitality, tourism, and aviation. People were saving their money as much as they could, especially as it was unknown when the pandemic would be over, she added.

Food products are excluded from the initiative, the regulations of which allow participating products to have at least 25 per cent of their components locally produced.

Radwa Al-Sweify, a macroeconomic analyst at investment bank Pharos, believes the initiative is critical because consumption makes up 80 per cent of Egyptian GDP. Since the initiative targets achieving LE120 billion in sales, the figure comprised nine to 10 per cent of the consumption figure in GDP terms, she said.

Sales through the initiative would also support growth during the first half of fiscal year 2020-21.

The banks participating in the campaign offering installments are the National Bank of Egypt, Banque Misr, the Banque du Caire, the Commercial International Bank, and the Nasser Social Bank.

Installments range between a year and two years, with a monthly interest rate of 0.76 per cent, provided purchased items cost no less than LE500.

Debit and prepaid cardholders can acquire a personal loan ranging from LE5,000 to LE25,000 free of administrative fees and at the interest rate identified by the bank. The interest rate on such loans at the Nasser Social Bank are fixed at nine per cent.

The consumer-finance companies participating in the initiative are Aman, affiliated to Raya Holding, and VaIU of EFG-Hermes.

The companies provide loans to customers of up to LE100,000 and up to LE25,000 to non-bank customers at an interest rate of 10.75 per cent throughout the duration of the initiative, as opposed to the regular 12 per cent rate.

Hala Al-Said, the minister of planning, said the initiative was financed by LE10 billion shouldered by the state and consumer-finance companies.

Ibrahim Al-Arabi, head of the Egyptian Federation of Chambers of Commerce and chair of the Al-Arabi Group, one of the companies taking part, said the campaign would refresh consumer purchasing power, especially following retreats in sales and difficulties in importing raw materials.

“In some cases, production has been slashed by 50 per cent,” he said. The installment option would also facilitate sales, particularly because of the low interest rates and facilities introduced by the banks, he added.

The days to come would reveal how the initiative affected demand, especially following the Eid Al-Adha holiday, Al-Arabi said, adding that a number of retailers had requested extending the duration of the initiative for up to a year.

 

*A version of this article appears in print in the 6 August, 2020 edition of Al-Ahram Weekly

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