The volume of imported goods held in Egypt’s port facilities has returned to the levels seen before the letters of credit crisis struck last year, the prime minister said last week.
Less than $4.8 billion worth of imported goods on average are now held in Egyptian port facilities, which is about the amount that arrives daily, according to Alaa Ezz, secretary-general of the Federation of Egyptian Chambers of Commerce (FEDCOC).
This is the rate that existed before the crisis that began with the Central Bank of Egypt’s (CBE) decision to switch to a documentary credit, or letters of credit, payment system in February 2022.
The system was implemented to curb dollar outflows, but it also caused large backups of goods in the ports due to the difficulties importers faced in obtaining the necessary hard currency to obtain the required letters of credit due to rising foreign-exchange rates for the Egyptian pound.
As the crisis mounted, the government took urgent measures to facilitate the release of commodities, especially the more perishable such as beverages and foodstuffs. The release of these goods into the market has helped to stabilise prices.
Matta Beshai, a member of the board of the Importers Division of the FEDCOC, said the quantities of goods that have been released from the ports in recent weeks and their impacts on prices have been significant.
But he said that the process had so far not included finished products, such as electrical goods or sanitary ware, which have been held up in the ports since the letters of credit system went into effect.
Ezz said that competition between producers and importers would increase as raw materials and other goods, now free of late fines, port storage costs, and other overheads, become available, and factories return to work at full capacity.
These dynamics would cut down costs and reduce margins of risk due to foreign-exchange fluctuations, sometimes more than compensating for the loss in value of the pound against the dollar, he said, with prices falling as a result.
According to Ezz, less than $2.3 billion worth of goods remained held up in the ports as of 23 January, down from $14 billion on 1 December.
“The releases have continued apace in the past few days, solving the problem as concerns production requirements and basic commodities,” Ezz said.
“We will now be able to return to normal. The availability of raw materials for factories to cover a month or two of production will enable them to resume operations at full capacity and increase the supply of goods.”
The government has been closely monitoring the movement of goods from the ports since the CBE decided in late December to cancel the documentary credit system and revert to the previous system.
Prime Minister Mustafa Madbouli said he had formed a working group consisting of officials from the Ministry of Finance, the Ministry of Trade and Industry, and the CBE to work in close coordination with the FEDCOC and follow up on the release of goods and commodities.
He added that he was personally following up on the progress of the working group to ensure the speedy implementation of necessary procedures.
Finished manufactures will come next, Beshai said, adding that the lack of finished products had led to the emergence of Egyptian alternatives, though these were sometimes of poor quality, while the prices of the original imported items had tripled or quadrupled.
In an interview with Al-Ahram Weekly, Ezz said that “the hold up of goods in the ports for long periods drove up their prices due to late fines, storage costs, and damage that sometimes occurred, as well as the rising cost of foreign exchange during the time the goods stayed in the ports.”
Although it takes about three weeks for goods to reach the market after their release, “even their release helps to bring down or stabilise prices,” he said.
“No sooner did the prime minister announce that fava beans and lentils had been released than the price of fava beans dropped to LE5,000 a ton,” he added, explaining that some wholesalers had been stockpiling in the hope that prices would go up.
However, the moment the prime minister had announced the release of the beans at the port, the merchants lowered their prices for fear of being undercut once supply built up.
Ezz said that during the crisis the government had taken pains to ensure that factories continued operations, if only at a quarter of capacity. Now that factories can return to full capacity, goods will become available to revive competition and stabilise the markets, he said.
* A version of this article appears in print in the 9 February, 2023 edition of Al-Ahram Weekly