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Thursday, 22 October 2020

Egypt: Export support revisited

A new export support mechanism is in place but delayed payments to exporters remains a problem

Mona El-Fiqi , Thursday 25 Jul 2019
Export support revisited
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The Export Development Fund (EDF) last week approved a new mechanism to support exports for fiscal year 2019-20. With a LE6 billion budget, the EDF will offer incentives to exporters in a bid to help them improve their competitiveness in foreign markets.

Under the new programme 40 per cent of the budget — LE2.4 billion — will fund financial incentives for exporters, 30 per cent will go towards improving export infrastructure and the remaining 30 per cent to settle financial obligations, including taxes. An estimated 2,000 companies, working in agriculture, chemical industries, spinning and weaving, leather products, engineering products, furniture and construction materials are expected to qualify for export incentives.

The new mechanism was approved after discussions with the Federation of Egyptian Industries, the Federation of Chambers of Commerce and export councils. 

A statement issued by Ministry of Trade and Industry said the programme will be implemented on a sector-by-sector basis. Budgets will be set for each sector and revised every six months according to each sector’s performance.

Under the existing system, exporters are eligible for a tax rebate of eight to 12 per cent of the total value of products when 40 per cent of the components are of local origin. 

To encourage small and medium enterprises the new mechanism adds an additional one per cent to rebates in cases where the local components are sourced from a medium sized enterprise, and two per cent when sourced from a small enterprise. Manufacturers only receive payment after products have been exported.

The programme will continue to provide an additional LE40 million to companies exporting to Africa, LE100 million to companies using EgyptAir shipping services and LE100 million for the Export Development Authority to fund promotional fairs for Egyptian exports.

The sums allocated for developing export infrastructure aim to increase the volume of exports by 20 per cent by supporting marketing, funding production technology and boosting competitiveness in foreign markets.

The programme will be revised in January each year, with any modifications taking effect on 1 July.

Sectors will benefit from the export support fund according to the value they add to products, the percentage of local components, the location of factories, the destination of exports, employment incentives offered and the technologies they use.

Mohamed Qassem, chairman of International Company for Trade, is happy the government is once again paying attention to the export support fund, but worries LE6 billion is not enough, especially given the depreciation of the pound. In the 2018-2019 budget the government allocated LE4 billion for export support, up from LE2.6 billion the year before.

Though the new export support fund is a step in the right direction, helping exporters access markets like Africa and providing technical assistance and training, Qassem says exporters will continue to face problems related to high production costs and inflation rates.

Exporters are keeping their fingers crossed that the incentives will turn out to be more than ink on paper. In recent years bureaucracy, and a lack of funds, has resulted in many exporters not receiving incentive payments for which they were eligible.

The new mechanism, Qassem notes, fails to address the issue of the LE20 billion exporters are already owed in delayed incentive payments.

The minister of finance announced last week that a committee has been formed to examine overdue payments and oversee final settlements. The Federation of Egyptian Industries has already suggested overdue export support be deducted from companies’ taxes or utilities bills. The Ministry of Trade and Industry has yet to reach a decision on the matter.

Ehab Al-Dessouki, head of the economics at the Sadat Academy for Administrative Sciences, warns that in the absence of an increase in production capacity in sectors where Egyptian products have a competitive edge, the export support programme is unlikely to result in a significant boost to exports.

It is a stopgap, he argues, and must be accompanied by measures that help investors increase production.

Egyptian non-oil exports reached about $25 billion compared to  about $22 billion in 2017.  

“This is a meagre figure for a country like Egypt,” says Al-Dessouki. Moroccan exports reached around $30 billion in the same period, while those of Turkey exceeded $150 billion.

Al-Dessouki, nonetheless, maintains the programme will help exporters by financing technical assistance, marketing and shipping facilities, and providing information about foreign markets.

*A version of this article appears in print in the 25 July, 2019 edition of Al-Ahram Weekly under the headline: Export support revisited

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