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Monday, 22 July 2019

An end to Egypt's export subsidy delays?

Recent promises may end a two-year delay in the release of vital export subsidies to Egypt’s exporters

Mona El-Fiqi , Sunday 2 Dec 2018
Textile factory
Egyptian worker in a textile factory (Photo: Reuters)
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Minister of Finance Mohamed Maait announced last week that export subsidies allocated in the budget for the current fiscal year would soon be presented to the Ministry of Trade and Industry before their disbursal to Egyptian companies.

In a meeting with the heads of the country’s export councils, Maait said the first payments could be made within a week.

The cabinet is scheduled to meet during the coming 10 days to find a solution to the late disbursal of the export subsidies. It will discuss a new mechanism that should help to pay them on a more regular basis and avoid delays.

Due to the country’s current budget deficit, the government was unable to pay the companies export subsidies for more than two years.

The funds are paid when the exporting process is finished, and they range from eight to 12 per cent of the total value of the products concerned.

Around 2,000 exporting companies are qualified to receive export subsidies.

Requests for receiving the subsidies are submitted to the Egyptian Export Development Fund (ESF) within a year of the products’ export date. The documents needed include a valid certificate from a government-authorised agency and an industrial and export register.

The documents are examined by specialised committees, and if approved export subsidies are released within six months of submission.

The government allocates LE2.6 billion annually to the ESF, with the aim of encouraging Egyptian companies to increase their products’ competitiveness in foreign markets.

However, in the 2018/2019 budget, the government allocated an additional LE1.4 billion to the ESF to reach LE4 billion in order to pay long overdue funds.

Hoping that the government’s promises now turn into actions, frustrated exporters have argued that although they did well to increase exports by seven per cent in 2018, the government did not take action to increase the export subsidies or even pay the delayed funds.

Some exporters have complained that their companies are owed more than LE100 million in export subsidies.

Mustafa Al-Nagari, a member of the Agricultural Products Export Council, said that exporters in his sector had not received export subsidies for more than two years.

The minister of finance had declared that around LE0.5 billion would be paid during the coming period, but this was not enough, he said.

“The value of the delayed funds has reached LE7 billion, and it continues to increase every day when exporters submit their documents to receive funds for further exports. This problem should be solved as soon as possible,” Al-Nagari said.

Sayed Ahmed, chairman of the Textiles Export Council, said that “exporters are suffering, and the situation could turn into a disaster because they are in urgent need of their export subsidies to meet their financial responsibilities.”

He added that the council received 10 to 15 complaints a day from textiles factories, particularly in the Delta centre of Al-Mahallah Al-Kobra.

The prices of energy, raw materials and wages had increased, leading production costs to soar, he noted. “Unless they receive their payments soon to help them to manage their businesses, a large number of companies will close,” Ahmed said.

The increase in the cost price of products had meant less competitiveness in foreign markets, he added.

The government aims to increase Egyptian non-oil exports to $30 billion in 2020 compared to $22 billion in 2017. “If the government really aims at increasing exports, it should raise the export support fund to double at least,” Ahmed said.

The Egyptian Businessmen’s Association (EBA) and the export councils have sent a memo to Prime Minister Mustafa Madbouli requesting that an urgent solution be found for the export-subsidies crisis as well as the value-added tax refunds due on exports.

The total amount of the long-overdue subsidies has reached LE9 billion, according to the EBA memo.

“The delay in payments has had a serious impact on exporters, who will lose their share in foreign markets if they are not able to conclude future plans,” the memo says.

Many Egyptian exporters have had difficulty maintaining their shares in international markets in the past few years because of the difficult economic situation.

A lack of cash is another problem facing some production lines and affecting the employment rate as well as the economic growth rate.

According to the memo, the problem is a poor message for foreign investors who may plan to invest in Egypt.

In an attempt to find a solution, the Federation of Egyptian Industries has suggested to the ministry of trade and industry that exporters should exchange their owed money against unpaid taxes and insurance bills.

Many sectors are qualified to receive export subsidies, including agricultural products, the chemical industries, the spinning and weaving industries, leather products, engineering products, furniture and the construction materials industries.

Ahmed explained that each sector could benefit from export subsidies according to the value-added of the products concerned, the percentage of local components, and the geographical location of factories, as well as the exports’ destination, employment incentives, and the use of innovative technologies.

Egyptian non-oil exports increased during the first nine months in 2018 by seven per cent to reach $16.6 billion, compared to $15.5 billion during the same period in 2017.

Imports also jumped during the first nine months in 2018 by 14 per cent to reach $49.1 billion, compared to $43.2 billion in the same period of 2017.

* A version of this article appears in print in the 29 November, 2018 edition of Al-Ahram Weekly under the headline: An end to subsidy delays?

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