Egypt: Expanding export capacities

Hamza Abdel-Fattah, Saturday 22 May 2021

Al-Ahram Weekly reports on suggested changes in Egypt’s export-support programme

Expanding export capacities
Expanding export capacities

The Ministry of Foreign Trade and Industry is overhauling its export-support programme with the aim of increasing non-petroleum exports to $100 billion over the next few years.

It will amend the programme, which offers various incentives to exporters, to include new geographical regions and export sectors with high added-value and a high proportion of local components, to increase incentives for small and medium-sized enterprises (SMEs), and to expand the Egyptian presence in African and Arab markets, according to an investor close to the new programme.

The investor, who preferred to remain anonymous, said that incentives on exports targeting African markets would increase by 50 to 75 per cent.

Khaled Abul-Makarem, chair of the Chemical and Fertilisers Exports Council (CFEC), said the main goal of supporting exports was to alleviate the burden on manufacturers and exporters and provide them with price flexibility so they had a competitive edge in overseas markets.

“The new stimulus plan serves that goal,” Abul-Makarem said. “It will be reflected in the growth of manufacturers’ export capabilities, increased overseas sales, and the expansion of facilities once new markets open up.”

Over the past five years, Egypt’s non-petroleum exports increased from $20.42 billion in 2016 to $25.63 billion in 2019, dropping by one per cent last year due to the Covid-19 pandemic that negatively impacted global trade.

Diversifying markets will cut risks and reduce the impact of fixed costs resulting from increased production. It will also limit factors that decrease Egyptian exports and make them more competitive in global markets, according to Abul-Makarem.

The CFEC’s vision of the way the programme should be implemented included two components, he said. The first was to provide exporters with 100 per cent of the value of the support allocated to them in the same year, a step that would provide them with liquidity. Alternatively, a monthly financial allowance could be given to sectors benefiting from export-stimulus programmes by listing exporters on lists according to the sectors benefiting from the programmes.

The second is that the CFEC is also calling for a 100 per cent increase in freight support to African countries and adding the cost of domestic shipping in land-locked countries where shipping, transportation, and insurance costs are high.

Freight support in African markets would also include strategic and regional markets, such as the Mercosur trade bloc, the Commonwealth countries, the Eurasian Economic Union, and countries with which there are no preferential trade agreements.

Abul-Makarem called for support to be given to Egyptian companies on global digital sales platforms, so that they can operate like Asian companies which receive orders via e-commerce and b2b sales platforms. He added that permanent commercial centres and logistical areas should also play a role in storage and be included in the export-support system.

The new stimulus plans should also allow the addition of new products to export-support programmes, and the addition of e-marketing to boost promotional and marketing activities such as specialised digital expo platforms, bilateral meetings, and networking by video-conferencing and 100 per cent support packages.

Other targeted goals in the new export-support programme that will give an advantage to Egyptian exports include strengthening national industries by increasing the use of local components and transforming raw materials into intermediate and final products, whether industrial or commodities.

“Supporting projects in Upper Egypt, in border areas, and the economic zone of the Suez Canal will increase exports in these areas and provide infrastructure support for SMEs,” Abul-Makarem said.

Walid Gamaleddin, chair of the Export Council for Building Materials (ECBM), wants incentives to be monetary in form to make them easier to handle, the automation of the services of the Exports Subsidy Fund, and the addition of new sectors such as ceramics and cement to the programme.

Ahmed Sobhi Hamido, dean of the Swiss College for Business Administration in Cairo, believes the current stimulus programme is too rigid and is inadequate to boost Egyptian exports. He said it did not sufficiently encourage new sectors and new exports and “does not focus on increasing added value or local components to the exported products.”

Stimulus policies should not be monetary or in kind only, he cautioned, but should take into consideration the differences between sectors.

Egypt ‘s new export-support programme aims at a growth rate of ten per cent in the first year for exports, 15 per cent in the second, and 20 per cent in the third, until it reaches exports worth $100 billion, according to members of export councils.

“Reaching $100 billion in non-petroleum exports is not a huge number for the capabilities of Egypt’s economy, if there is serious action to reach this figure,” said Radwa Al-Swaify, managing director and head of research at Pharos Holding.

Al-Swaify believes that Egyptian companies have achieved a good position in the local market, where demand is high. This could prevent them from seeking new markets that may require higher standards and quality than the domestic market, she said.

She added that some markets have different tastes to those of Egyptian consumers, which would require production to adjust to the tastes of those markets, as well as different promotion and marketing.

Egyptian garments are facing fierce competition in African markets from China, which mass produces at low cost, according to Marie Louis, chair of the Readymade Garments Export Council. Louis said that African markets require immediate delivery, unlike others which place orders and deliveries come later. She called for research to be carried out into the tastes of different markets to guide production.

Louis said that one problem facing Egyptian garment exports was the high fees imposed on the sector including the insurance costs paid for workers. “This adds the cost of interest and fees to the sale price,” she said. In Egypt, this is about five to six per cent, while in competing countries it is no more than four per cent, she explained.

Early last year, the Central Bank of Egypt (CBE) launched an initiative to fund projects with loans made available at an interest rate of eight per cent, in order to limit the negative impacts of the Covid-19 pandemic on businesses.

However, Louis said this was insufficient and called for lowering interest rates on corporate loans to five per cent on pound-denominated loans and to one per cent for dollar loans, as well as fixing the prices of electricity for two years and decreasing the cost of gas.

The government reduced the cost of gas to $4.5 per million thermal units, and electricity prices were cut by 10 piastres per kilowatt for industrial facilities in April 2020, to offset the toll of the pandemic.

ECBM chair Gamaleddin wants to see gas prices slashed to $3 and electricity by 40 per cent for industrial facilities. “The Building Materials Sector’s exports last year reached $6 billion, and we can grow by 20 per cent more, if the prices of gas and electricity are reduced,” he said.

As well as cutting the cost of energy, Hanri Berzi, chair of the Food Export Council, also wants to see more stability in legislation, especially on taxes. “Legislative amendments cause instability for investors,” Berzi explained, adding that food exports had maintained one per cent growth last year, and that Arab markets were a good opportunity for Egyptian food exports.

According to Al-Swaify, Egypt’s food manufacturers could export 30 to 40 per cent of their production to Arab markets, but currently exports stand at only five per cent. She explained that in the past most food exports had gone to Arab countries that over recent decades had witnessed political instability, such as Syria, Iraq, Libya and Sudan. Today, conditions were stabilising, she said.

Amr Abu Frikha, an industrial investor, said that the visit by Prime Minister Mustafa Madbouli to Libya this month had been pivotal in Egypt’s participation in the reconstruction of the country and a golden opportunity for Egyptian companies.

He said that increasing exports meant more than just increasing incentives, and that it would require creating an investment-friendly environment. “What attracts global companies to Egypt is the investment atmosphere, not just the perks,” he said. “Companies are always looking for stability and the sustainability of profits.”

*A version of this article appears in print in the 20 May, 2021 edition of Al-Ahram Weekly

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