The government and the country’s export councils have reached an agreement on points related to the export-rebates programme that aims to boost exports and reimburse certain expenses, the cabinet announced following a meeting of ministers on Sunday.
The three-year programme will cost an estimated LE28 to LE30 billion in its first year and will go into effect in July. The current 2022-23 programme, which is about to expire, has a budget of LE8 billion for this fiscal year.
Prime Minister Mustafa Madbouli has been meeting with representatives of the export councils in all sectors since January with the aim of revamping the export-support programme, itemised in the national budget under the heading of the “export burden reimbursement programme”.
The discussions coincided with the Ministry of Finance’s preparation of the 2023-24 budget.
Egypt’s non-petroleum exports increased to LE35 billion last year, surpassing the LE30 billion mark despite ongoing supply chain impacts from the Covid-19 pandemic and the war in Ukraine.
“This is a good sign that the export-rebates programme is on target,” said Nermine Abul-Ata, an advisor to the minister of trade and industry, during a workshop on the rising cost of living at the cabinet’s Information and Decision Support Centre (IDSC).
The government is targeting exports worth $100 billion within five years, Madbouli said in May 2022.
“The new export-rebates programme will contribute to boosting Egyptian exports while enabling exporters to meet their obligations,” Madbouli said early in March. “This will have a positive effect on maximising the country’s productive capacities in diverse sectors and expanding the export base.”
Alia Al-Mahdi, a professor of economics, said that it was important to put a time limit on the support given to companies. No company should receive support more than twice in five years, and support should be made conditional on a company’s ability to stay competitive internationally, she said.
She said that the purpose of the support should be to enable companies to deal effectively in the global marketplace, and the programme should be readjusted to ensure that support is directed to firms that have not previously benefited from it, thereby increasing the number of companies equipped to export.
A portion of the support should target small and medium-sized enterprises (SMEs) that are geared for export and have succeeded in signing deals for their products abroad, she said. Boosting them through the programme would make them stronger, more sustainable, and more internationally competitive.
But the support should not last more than three years and the same company should not be eligible for support more than once within a certain timeframe so as not to deprive other companies of the chance to explore avenues to international markets.
According to Sherif Al-Sayad, head of the Export Council for Engineering Industries, the recent meetings with the prime minister had focused on a specific demand, namely that rebate payments should be made within at most three months from the date exporters had submitted the required documents certifying that the exported items had been shipped and detailing the production costs and local-component ratio in the manufactured products.
Praising the new rebates programme, Al-Sayad said it took into account the recommendations made by the export councils in all sectors. “We have truly been partners in forging the outlines of the new programme. But we have also learned that there is one problem that hinders the full realisation of the programme’s goals: delays in paying the rebates. This causes the programme to fall short of its goals.”
He said that the purpose of offering support to exporters was to cut down production costs, making it possible for products to reach markets at competitive prices. Delays in payments of the rebates undermine this end because export shipments are bound by contract deadlines. If the exporter is not reimbursed in time, he will end up paying the full production costs without the benefit of the subsidy.
The export-support programme has been plagued with delays in the past in the payment of dues to exporters. However, the Export Development Fund reported that it had disbursed approximately LE42 billion in overdue rebate payments to exporting firms between December 2020 and December 2022.
The programme was designed with certain ends in mind. One is to boost the ratio of local components in exported products, as exporters are eligible for rebates only if a minimum of 40 per cent of local components are used.
A second aim is to encourage SMEs, and these will be eligible for an additional two per cent and one per cent, respectively, rebate on top of the standard one. Thirdly, the programme also aims to increase the share of products targeting African markets, making the exporters of such products eligible for additional increments.
According to Al-Sayad, the higher the ratio of local components in the exported product, the higher the rebate. “This is an important step towards promoting local manufacturing,” he said.
Yomn Al-Hamaki, professor of economics at Ain Shams University in Cairo, agreed, but said that the scaling system used to stimulate higher ratios of local components should be fine-tuned to encourage exports from high-priority sectors in which the Egyptian economy has a potential competitive advantage.
She identified food, clothing, furniture and leather goods as among the most promising sectors.
“Not every export realises the best returns for the Egyptian economy as a whole,” she said.
“We need a national manufacturing and export strategy. Based on that, we can identify the sectors that should be prioritised for export support, thereby ensuring that the export-support programme maximises our economic resources.”
“Every exporter who helps support SMEs that offer him a local alternative to an imported component should receive a higher rebate rate,” she concluded.
* A version of this article appears in print in the 30 March, 2023 edition of Al-Ahram Weekly