In a move that has been welcomed by the business community, the government took significant steps this week to facilitate import procedures at the ports and to ease procedures for importers required to come up with the hard currency needed to clear goods through customs in accordance with Egypt’s letters of credit system.
Since February, importers have been required to present letters of credit (L/Cs) rather than use the cash-against-documents system that had been in place before. The implementation of the L/Cs system has proved costly and time-consuming for importers as they must be covered 100 per cent in cash by the importer, except for some food items.
The difficulties faced by importers because of the application of the L/Cs system has caused goods to be held up at ports, sometimes hindering production at factories.
While the system is still in place, the Ministry of Finance has issued decisions to make life easier for importers. Importers and investors are now exempt from fines due to delays in finalising customs procedures because of an inability to complete the necessary paperwork on time. The ministry has also helped by expediting the clearance of goods through customs before the final processing of form four in the L/Cs system.
The banks issue a letter of credit to importers covering expenses related to shipments including foreign exchange and duties after the submission of form four in the L/Cs system.
Shipping agencies awaiting customs clearance will now also be able to transfer imported goods to dry ports or warehouses outside the ports, sparing them dollar-denominated storage costs. Deadlines for food and non-food imports have been extended to four and six months, respectively, taking into account validity dates before being declared out of date.
Manufacturers, companies, and businesspeople have been adversely affected by the L/Cs system, said Ahmed Shiha, a member of the Importers Division at the Federation of Chambers of Commerce. Stressing the importance of the new decisions for importers, he said that they would stimulate a return of the goods that have recently disappeared from the market.
“The return to the cash-against-documents system, as opposed to the L/Cs system, will be a major step forward,” he said. “It is quicker and less costly, and it eases pressures on hard-currency resources.”
In the L/Cs system, the importer’s and exporter’s banks are key players. In the cash-against-documents system, transactions are between importers and exporters, with the banks acting as intermediaries.
“The new decisions are certainly a step in the right direction,” said Ali Eissa, chairman of the Egyptian Businessmen’s Association. “They make it possible for work to continue in many sectors. The decision to extend the deadline for storing foodstuffs to four months is also a fair one. It considers the welfare of the business community before goods are declared out of date and auctioned off.”
Ibrahim Al-Imbabi, head of the Tobacco Division at the Federation of Chambers of Commerce, said that factories had suffered shortages in raw materials that had pushed up the prices of final goods. “Had it not been for the decision to facilitate the import of production inputs, some factories would have had to shut down operations at the end of this month due to the supply crisis,” he said.
Mohamed Al-Bey, a banking expert, explained that President Abdel-Fattah Al-Sisi’s instructions to the new governor of the Central Bank of Egypt (CBE) had delineated three areas that needed attention in easing the foreign-currency deficit and enhancing monetary performance.
These were ensuring a climate conducive to investment, diversifying foreign-exchange sources, and developing monetary policies to keep pace with global economic changes, he said.
According to CBE figures, Egypt collected around $28 billion in hard currency in the first quarter of this year from five sources: remittances from Egyptians abroad, exports, tourism, Suez Canal revenues, and net foreign direct investment (FDI).
This is considerably more than the $19.7 billion it earned in the same period in 2021. But despite the increases in the foreign-currency revenues, the estimated budget deficit for 2022-23 is still LE558 billion (around $29 billion), not including debt instalment payments at LE965 billion (around $50 billion).
To fill the gap, Al-Bey anticipates that the CBE and government will work to finalise negotiations with the International Monetary Fund (IMF) with a view to a new loan agreement.
Based on information on the negotiations, Al-Bey said he believed the CBE would devalue the Egyptian pound by 10 to 15 per cent and raise interest rates by two to three per cent in order to absorb inflation accruing from the devaluation.
He also expects there to be a redoubling of efforts to improve the investment climate in order to promote FDI, whether through the creation of new industrial projects or by selling stakes in state-owned companies.
*A version of this article appears in print in the 8 September, 2022 edition of Al-Ahram Weekly.