Saturday, February 23, 2019

Egypt Government Mulls New Support Mechanism for Exports
Mona El-Fiqi
Friday 22 Feb 2019

The government is looking for alternatives to its present dysfunctional export-subsidies programme

The government is debating a new system for export subsidies, with Prime Minister Mustafa Madbouli starting discussions on 29 January with the country’s various export councils to find a more effective support mechanism for exporters.

According to the current system, the government provides between eight and 12 per cent of the value of the exports to the exporters concerned provided that the products include 40 per cent local components.

Around 2,000 exporting companies are qualified to receive export subsidies, usually paid out after the deals are implemented.

However, the government has failed to pay its dues to qualified exporters for the last two years, with some putting the value of the arrears at between LE15 and LE21 billion.

“The delays in payments have had a serious impact on exporters who have not been able to include these funds when calculating the cost and revenues of export deals because there has been no accurate date for receiving them,” Mohamed Nassef, secretary-general of the Export Council for Engineering Industries, told Al-Ahram Weekly.

Exporters complained that they could lose their shares of foreign markets if they are not able to conclude future plans. Many Egyptian exporters have had difficulty maintaining their shares in international markets in the past few years because of difficult economic conditions.

Boosting exports, and thus increasing hard currency revenues, has been one of the main expected benefits of the government’s economic reform programme, with the devaluation of the pound in particular making Egypt’s exports more attractively priced.

Madbouli has so far held meetings with the members of four export councils, including engineering industries, and he is scheduled to meet members of the remaining ones this month.

“The government wants to find out the views of each council regarding the best formula for the export-subsidies system in order to avoid the current problems,” Nassef said.

During the Engineering Industries Council meeting with the prime minister last week, members had submitted 11 suggestions to create a more effective export-support system, according to Nassef.

He explained that there were different kinds of support other than financial incentives that the government could look at. “Introducing better shipping facilities is one,” he added.

Over the last four months, the Federation of Egyptian Industries together with the Egyptian Businessmen’s Association have suggested exchanging owed export subsidies for other privileges like tax deductions or insurance payments.

While Nasser said that these suggestions would be difficult to implement, it might be practical to exchange the dues for the land parcels needed to expand the exporters’ factories.

“It would be better for exporters to receive fewer financial incentives and for these to be disbursed on time, rather than large amounts delayed for years,” he said.

Although the government announced that its new mechanism will be announced by the end of February, Nassef does not expect it before the end of April.

Mustafa Al-Nagari, a member of the Agricultural Products Council, said that “it is too early to know the features of the new system as the government is discussing it with members of 13 different export councils that have different visions.”

Al-Nagari said that on 26 February the Egyptian Businessmen’s Association would hold a meeting with exporters to examine the results of these meetings with the government.

Many sectors are qualified to receive export subsidies, including agricultural products, the chemical industries, the spinning and weaving industries, leather products, engineering products, furniture and the construction materials industries.

Each sector can benefit from export subsidies according to the value-added of the products concerned, the percentage of local components, and the geographical location of factories, as well as the exports’ destination, employment incentives, and the use of innovative technologies.

According to the current system, requests for receiving the subsidies are submitted to the Egyptian Export Development Fund (ESF) within a year of the products’ export date. The documents needed include a valid certificate from a government-authorised agency and an industrial and export register.

The documents are examined by specialised committees, and if approved export subsidies are released within six months of submission.

The government allocates LE2.6 billion annually to the ESF, with the aim of encouraging Egyptian companies to increase their products’ competitiveness in foreign markets.

However, in the 2018/2019 budget, the government allocated an additional LE1.4 billion to the ESF to reach LE4 billion in order to pay long overdue funds.

Nassef explained that the government plans to increase the funds allocated for export-subsidies dues in the country’s budget for 2019/2020 in an attempt to end this problem.

He added that the government was seeking to raise export volumes to double what they are now within five years to reach $50 billion.

“If the government supports the exports sector, we can achieve this figure easily,” Nassef said.

Egyptian non-oil exports increased during 2018 by 16 per cent on a year-on-year basis to record $25 billion compared to $22.4 billion in 2017.

Last month, Amr Nassar, the minister of trade and industry, issued decree 12/2019 that reduced the number of export councils from 16 to 13. The decree merged some sectors and changed the heads of other councils.

*A version of this article appears in print in the 21 February, 2019 edition of Al-Ahram Weekly under the headline:New support for exports

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