Support for exports

Ahmed Abdel-Hafez, Sunday 16 Jun 2024

With stability restored to the foreign-exchange market, the time is ripe to increase exports.

Support for exports


The value of the dollar against the pound has been stable for some time, and the devaluation of Egypt’s currency that took place in March has put an end to the parallel exchange market.

The inflow of foreign currency from the Ras Al-Hekma deal as well as pledges made by international institutions have led to the dollar hovering at around LE47 to LE49 for the last two months.

One of the main beneficiaries of the devaluation is the exports sector, with Egyptian goods now being more attractively priced than competitors abroad.

According to Ahmed Zaki, secretary-general of the Exporters Division at the Cairo Chamber of Commerce, the government is developing a strategy to boost exports in concert with developing the industrial sector.

The plan calls for linking the financial support exporters get from the Export Support Fund to the percentage of local components in exported goods.

Producers that demonstrate a commitment to increasing the local components in their products by a certain percentage each year will be entitled to incremental increases in the financial support they receive from the fund, Zaki said.

The value of the support will come under review every five years.

Zaki said that the strategy would both increase exports and stimulate domestic production. It would contribute to reducing the country’s trade deficit and encourage Egyptian and foreign entrepreneurs to launch new facilities to produce the intermediate inputs used in manufacturing, increasing the percentage of local components and saving money on importing them from abroad.

He added that he hoped to see incentives to stimulate investment, such as tax breaks for factory owners who add new production lines or produce new products to replace imports.

“Developing strategies to support industry and increase export capacities will help overcome obstacles that prevent investors from benefiting from trade agreements like the Common Market for Eastern and Southern Africa (COMESA),” Zaki said.

 He added that if manufacturers meet the requirements of a high percentage of local components in their products under this agreement, they will be able to significantly increase their exports to fellow African Union (AU) countries.

MP Moataz Mahmoud, who chairs the Industry Committee in the House of Representatives, the lower house of Egypt’s parliament, said now was the perfect moment for the government to finalise mammoth deals like Ras Al-Hekma in the export-targeting industries.

“If the government, in collaboration with the private sector, succeeds in achieving investment in industry as great and as bold as its achievements in the real-estate sector, the global standing of the Egyptian economy will be totally transformed by 2030,” Mahmoud said.

It should take further steps towards stabilising the exchange rate of the dollar against the pound, containing inflation, and monitoring the markets, he added.

Mahmoud said he believed that the time is ripe to reorder the country’s export-support programme in order to ensure that subsidies are directed to industries committed to the highest quantities of local components and to producing products for which there is a high demand in international markets.

According to the strategy outlined by Zaki, after choosing the industries that meet the criteria for being eligible for the export-support programme, the financial support available should be determined according to the overall cost of the product and not used to cover different costs, such as those involved in transport and production.

If this is not done, the financial support awarded could strain the programme. But by applying this suggested strategy, the government can avoid inflating the support accorded and the resulting increases in the price of exports to levels that make them less competitive in international markets.

The most important feature of the programme, according to Zaki, is the requirement that the revenues from exported goods be transferred to a designated account at the Central Bank of Egypt (CBE).

This then pays the exporter 80 per cent of the revenues in Egyptian pounds and the remaining 20 per cent in dollars, thereby achieving two goals. One is to increase state dollar revenues, and the other is to ensure that the exporter has the necessary hard currency to cover expenses for maintenance, upgrading equipment and facilities, and production components imported from abroad.  

Mahmoud said that while industries that do not benefit from the programme can receive their full revenues in dollars, if the state allocates its resources to supporting an industry, it should be entitled to rapid returns on its investment.

Secretary-General of the International Transport and Logistics Division at the Cairo Chamber of Commerce Amr Al-Samdouni said that “the government is pursuing plans to develop, expand, and improve the efficiency of Egypt’s ports, logistics stations, and multimodal transportation, all of which will transform Egypt unto a global trade and logistics hub by the end of 2024.”

“The immense progress underway in the country’s transport infrastructure is helping to strengthen the economy.”

* A version of this article appears in print in the 13 June, 2024 edition of Al-Ahram Weekly

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