The Central Bank of Egypt (CBE) launched a new initiative on Sunday to cover risks associated with issuing letters of credit by banks that is part of an overall government plan to introduce new import rules with a view to better regulation and financial inclusion.
According to the CBE decision, Egyptian banks will be intermediaries between the importer and the bank of the supplier of the goods, guaranteeing to obtain goods conforming to the relevant national specifications and assisting suppliers in obtaining their full financial rights as soon as the importers receive their goods.
It followed rules issued a week earlier making the collection of documents no longer acceptable by importers wanting to transfer the value of goods and imposing a greater role for the banks in the import process so that they act as intermediaries and guarantors for importers instead of being confined to their earlier role that was largely that of transferring funds.
Although the moves are considered to be important to ensure controls over the quality of goods and regulation within the banking sector, importers fear that the new rules might make things more difficult for them, increase the prices of goods, and delay the completion of some deals.
This is because it has become customary for the importer to pay the entire value of the commercial transaction to the bank before completing the importing process.
Ahmed Shiha, a member of the Importers Division at the Cairo Chamber of Commerce, said that the decision to stop dealing with collection documents for imports would increase the complexity of operations and make importers liable for the entire value of deals.
He said that an importer who agrees to buy goods worth $1 million would normally pay between 20 to 30 per cent of the value in advance and the rest upon receiving the shipment. However, under the new rules, the importer would need to pay the whole amount to the bank upon agreement with the supplier.
“Egypt’s importers hope that the CBE will review its decision, while taking into account the benefits due to all parties,” Shiha said.
Excluded from the decision, which will enter into force in March, are the branches of foreign companies operating in Egypt and their subsidiaries that import goods from other branches outside the country, along with goods shipped before the decision was issued, and shipments to a value of less than $5,000
Medicines and serums and the active ingredients necessary for their local manufacture are also excluded, as are 12 food items including tea, meat, poultry, fish, wheat, cooking oil, powdered milk, infant formula, beans, lentils, butter, and corn.
The Federation of Egyptian Industries, the Egyptian Businessmen’s Association, and the General Federation of Chambers of Commerce complained in a letter to the prime minister that the new rules could exacerbate supply-chain problems, damage competitiveness, and delay import shipments.
They demanded an urgent halt to the implementation of the decision, stressing that it was issued without consultation with business organisations regarding its impact on economic activities and investment.
“The business community is ready to assist the government in adopting policies that serve the national economy and the public interest, along with mechanisms that do not have negative consequences on existing deals,” the letter said.
The groups said that the measure would directly affect the supply of production inputs to industry, as well as of intermediate goods and spare parts for production lines. It would add to existing supply-chain problems caused by the Covid-19 pandemic and negatively affect production volumes and the provision of goods and their prices.
They said in their letter that the decision did not take into account companies that do not have credit facilities, especially small and medium-sized enterprises that might not be able to issue letters of credit to cover the whole costs of shipments at once. They noted that exempting foreign companies and their subsidiaries violated the principle of ensuring a level playing field for all.
The business groups also pointed out that imposing restrictions on imports has always led to increasing opportunities for smuggling owing to a scarcity of goods on the market and subsequent higher prices.
The letter demanded that the CBE halt the decision pending further study in order to avoid negative impacts on the economy and investment.
Tarek Amer, the CBE governor, said in a press statement that the decision was irreversible and that the banks were ready to implement it efficiently. He called on businessmen and importers to urgently adjust their situation and not waste time on controversies that had nothing to do with the stability of Egypt’s foreign trade.
The CBE decision comes within the framework of revisions to the regulation of import operations and the activation of the pre-registration system for shipments that will be applied compulsorily at the beginning of March.
Supporters of the decision believe that the new rules are an important step in the management of the economy, with increased controls over imported goods and steps taken to ensure their higher quality.
“The new system will ensure that goods with quality European specifications are imported, helping to protect human health, energy, and the climate, as well as ensuring better import regulation,” said Wael Al-Nahhas, an economic expert.
It requires submitting applications to the customs authorities a month in advance of the arrival of imports, allowing for better standards of examination, validity, quarantine, and other rules to ensure product safety.
“All countries in the world secure strategic and basic commodities in order to avoid problems or higher prices, but other commodities fall under the framework of good governance,” Al-Nahhas said.
*A version of this article appears in print in the 24 February, 2022 edition of Al-Ahram Weekly.