Cairo is to remove export taxes and cut import tariffs on selected goods as part of a series of emergency measures aimed at protecting Egyptian businesses from the worst effects of the global slowdown.
The plans include giving direct financial support to exporters and postponing a planned increase in energy prices. The Central Bank of Egypt is also considering a possible cut in interest rates.
The Trade & Industry Ministry will announce the details of the plan before the end of the month, according to Deputy Trade & Industry Minister Samiha Fawzy.
According to Fawzy, the min-istry plans to remove export taxes on cement and steel, and is reviewing the export ban on rice, which has been in place since March 2008.
It is also planning to remove a 2 per cent surcharge on other exports and to reduce import tariffs on raw materials, and has been in talks with banks about increasing the availability of finance for exporters, she says.
“There is excess liquidity in the banking sector, and we want to ease access to finance for exporters and industrial companies,” says Fawzy.
Under its plans, Cairo will also increase the capital of the Export Credit Guarantee Company for Export Insurance by £E300m ($54m), so it can provide cover to more exporters.
A new fund could also be set up to protect exporters against fluctuations in the exchange rate.
The fund would be set up under the auspices of the Export Development Bank, although the details have yet to be finalised. “We have only started exploring this idea this week,” says Fawzy.
The aid package will also include an increase in subsidies
to exporters. The Export Development Fund provides cash funding to exporters to support exhibitions and travel costs.
However, the level of support available to an exporter decreases after one year.
The new measures will ensure that exporters receive the higher level of assistance for two years.
In the second part of the wider scheme, the government will freeze energy prices at current levels. Trade & Industry Minister Rachid Rachid announced in September 2007 that energy subsidies to heavy industrial users would be gradually reduced.
Since then, gas prices for heavy users such as steel and cement firms have risen from $1.25 a million BTUs to $3. Prices for other users have been raised to $1.7 a million BTUs.
Electricity prices have also increased for industrial users, from £E0.13 a kilowatt hour to £E0.20 a kWh for low users, and from £E0.23 to £E0.30 for heavier users. The final objective is to remove all subsidies, so that the gas price reflects international prices within 10 years.
However, further planned price increases are now likely to be delayed. “The rate [of increase] is subject to the economic situation worldwide and locally,” says Amr Assal, chairman of the Industrial Development Authority.
While the plan is for the new measures to remain in place until December 2009, this could yet change. “It might be extended, it might be shortened,” says Fawzy. “It is a dynamic process and we will be continuously revising it.”
Further assistance for businesses could come from the Central Bank of Egypt, which has indicated that it may cut interest rates in an effort to stimulate the economy.
On 9 October, the Central Bank’s deputy governor, Hesham Ramez, said it would consider cutting interest rates, following a 50 basis point cut in rates by central banks in North America and Europe on 8 October.
The next meeting on interest rates is due to be held by the central bank on 6 November, although some bankers suggest any cut is more likely to happen in the first half of 2009.
“Inflation is still high,” says Simon Kitchen, chief economist at Egyptian investment bank EFG-Hermes. “We will be surprised if the central bank cuts interest rates when it meets in a few weeks. We expect a cut in the second quarter of next year.”
The central bank increased interest rates over the first eight months of 2008, as Egypt’s inflation rate increased. In the 12 months to the end of August, the inflation rate for urban areas rose to 23.6 per cent.
However, there are signs that inflation is now falling. According to the Central Agency for Public Mobilisation & Statistics, inflation fell to 21.5 per cent in September, raising hopes that the peak in inflation has passed. For the central bank to cut interest rates, it will need to be convinced that inflation is coming under control.
Egypt’s economy is expected to slow in 2009. The latest World Economic Outlook report from the International Monetary Fund (IMF) forecasts growth of 6 per cent in 2009, compared with 7.2 per cent in 2008.
As recently as April, the IMF forecast Egypt’s economy would grow at 7.1 per cent in 2009.
Egyptian equities have been pummelled in recent weeks. The benchmark Case 30 index stood at 5,965 points at the close of trading on 15 October, 50 per cent below its peak on 5 May this year (see feature, page 32).