Tightening up on imports

Safeya Mounir , Wednesday 15 Jun 2022

While food items are available in abundant quantities, stocks are running low on imported finished goods.

Tightening up on imports


“Many international clothing shops in Egypt are running short on stock,” said Matta Bishai, a member of the board of the General Division of Importers, describing the challenges facing Egypt’s importers.

He said that some international chains are running low on stock and have used up what they have. While all sectors of finished goods are facing this problem, food imports are not experiencing any problems, he added.

Bishai explained that the main problem facing importers was having to wait on the banks to meet their financial requests.

The situations started back in February, when the Central Bank of Egypt (CBE) decided that importers must use letters of credit rather than the long-established cash-against-documents process to finance their imports.

The letters mean that importers must pay the total value of their imports in advance to a bank that then acts as the intermediary between the importer and exporter. The decision was part of measures taken to regulate the import process and the use of hard currency at a time when Egypt’s hard currency revenues have been affected by the war in Ukraine.

Egypt’s net international reserves dropped in May to $35.5 billion, down from $37 billion posted in April.

In May, President Abdel-Fattah Al-Sisi decided to exclude the importers of production supplies and raw materials from the decision because it was causing supply chain disruptions and affecting local manufacturing.

But while the May decision was a relief to many, others still have to continue to abide by the letters of credit system, which has caused shortages of some commodities. Although these are of non-essential goods, and not of food or food production components, their absence from the market could impact economic activity in Egypt.

Bishai said that even though importers can conjure up hard currency to pay for the goods they wish to import, the banks may refuse to accept it even though the importers show them the needed documentation about the source of the hard currency.

According to experts, the banks may insist on procuring the hard currency themselves to prevent a flaring up of the black market.

In the meantime, things are becoming tough for many importers. Bishai, also deputy of the Sanitary Products Trade Division, revealed that he had had to send back seven out of 17 containers at the ports since 5 March because the paperwork was not ready.

He added that there could be serious shortages in some commodities in Egypt, such as water valves and water metres, due to such complications. He said he would have to shut down outlets selling these items in several new cities because of shortages of stocks.

Gamal Mannaa, deputy head of the Garment Division at the Federation of Chambers of Commerce, said that most shops are now selling imported products from last year, since they cannot import new clothes or this year’s fashion lines.

Mannaa said that most major factories had almost ground to a halt because even though the CBE no longer requires letters of credit for production inputs, procedures are still lengthy, and it takes time for the banks to make hard currency available.

If this continues, many factories could shut down, he said.

Mohamed Al-Mohandes, head of the Chamber of Engineering Industries, said that the engineering industries need production components from abroad and otherwise they cannot operate. He said that had it not been for the CBE’s amended decision to exempt intermediate goods and production components from the letters of credit, there would have been problems in the availability of engineering goods.

He noted that the prices of these goods had increased due to the global hikes in the cost of raw materials, as well as the leap in the dollar rate in Egypt, which had contributed to raising the prices of final products.

Passenger cars have been impacted by the CBE’s decision, and several foreign car companies said they will stop supplying their agents in Egypt due to disruptions in global supply chains, shortages of electronic chips, and precautionary measures to offset the repercussions of the Russian-Ukrainian war.

Egypt’s share of their products has been redirected to other markets.

The agent of one European car company in Cairo confirmed that most foreign car companies had decided to stop supplying their agents in Egypt over the past two months, adding that local agents were suffering because it could be difficult to convince the companies to reallocate cars to the Egyptian market in the event of a breakthrough in imports.

Bishai does not believe that the hike in the customs dollar rate to equal the value of the dollar’s market value will augment the shortages. It will not prevent importers from importing as long as the commodities concerned have customers and there are no local alternatives, he noted.

On 1 June, the customs dollar rate was set at LE18.64, up 10 per cent on the month before. Bishai expects this to impact the prices of imported goods by seven to 13 per cent.

A version of this article appears in print in the 16 June, 2022 edition of Al-Ahram Weekly.

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