Reducing Egypt's spending on imports is a priority on the new cabinet's agenda. This follows President Abdel-Fattah Al-Sisi's urging that the government rationalise the country's imports bill in an attempt to take pressure off Egypt's shrinking foreign currency reserves. According to recent figures released by the Central Bank of Egypt's (CBE), foreign reserves fell by $1.76 billion in September, reaching $16.33 billion compared to $18.09 billion in August. The decline is the third consecutive reduction in the country's foreign currency. International reserves fell from $20.08 billion in June to $18.5 billion in the country's foreign currency. International reserves fell from $20.08 billion in June to $18.5 billion in July, and then to $18.09 billion in August to record their lowest level in September. The current foreign reserves cover Egypt's commodity imports for 3.3 months. But experts say that the current foreign reserves should cover the imports bill for at least six months. The foreign reserves recorded their highest level this year in April, when they reached $20.52 billion. Al-Sisi urged the government to apply measures to reduce the country's imports, particuarly unnecessary goods to ease the pressure on the foreign currency reserves. Egypt's imports reached $12 billion in the first quarter of 2015, and the CBE adopted restrictions a few months ago to suppress the black market. Companies and individuals are not allowed to deposit more than $10,000 per day and $50,000 per month, according to CBC regulations. The restrictions on foreign currency bank deposits have reduced the ability of importers to use dollars acquired on the black market in transactions. These measures, the importers complain, have also hindered imports and have had a negative impact on the supply of goods, as well as on their prices in the market. The Central Bank tightly manages the exchange rate of the pound, which has been stable at $7.83 since July. Only this week, the rate increased to LE7.93. Business organisations expressed their concerns regarding the government's approach to reducing imports. A statement issued by the Federation of Egyptian Chambers of Commerce (FECC) said: “On Egypt's way to achieving its road map, voices have emerged calling for the application of polices that will close the market and make investors flee Egypt.” The statement explained that such policies will not help Egypt become a centre for trade and industry in the Middle East. Such measures have been applied in the past and led to economic crises from which people were still suffering, it said, and they aimed at reducing demand rather than increasing supply in the markets. “It has been proven that protective policies are no longer effective in Egypt or any other country. Egypt's economy should be left to operate according to the forces of supply and demand, with the benefit of strong authority, supervision and transparency,” the statement added. The FECC statement said that consumers will pay the price for the new policies. Ahmed Al-Wakeel, head of the FECC, declined to comment and told Al-Ahram Weekly that the FECC's statement explained his view. Ahmed Sheha, chairman of the Importers Division at the Cairo Chamber of Commerce, said that he rejects the accusation against importers that they import unnecessary luxury goods, causing shortages in foreign currency. He said that this is not true and that the government is making such allegations because it is not able to face up to the failure of the CBE's monetary policy to conserve foreign currency reserves. Some experts agreed that the move to reduce imports will have a negative impact on the economy. Yasmin Fouad, director of the Centre for Economic and Financial Research and Studies, said that the restrictions are being imposed on imports in general while there is a big difference between importers who benefit from importing unnecessary and luxury goods and producers who need to import raw materials to increase local production. Fouad said that the majority of Egyptian imports are food and raw materials. Egypt's imports are mainly mineral and chemical products (25 per cent of total imports); agricultural products, livestock and foodstuff (24 per cent, and mainly wheat, meat and maize); machinery and electrical equipment (15 per cent) and base metals (13 per cent). Other imports include untreated hides, wood, paper-making products, textiles and footwear (9.5 per cent), artificial resins and rubber (six per cent), and vehicles and aircraft (5.5 per cent). According to Fouad, the government should not minimise imports unless there are local alternatives for imported products. Fouad suggests that the government encourage farmers to increase their production of essential foodstuffs such as wheat and beans. She explained that the CBE's restrictions regarding foreign currency are giving a bad image to investments in Egypt abroad. “It is has never happened in any other country that somebody goes into a bank to buy a thousand dollars and the bank refuses him, as is the case in Egypt,” Fouad said. According to Fouad, due to such regulations people hesitate to deposit their foreign currency in the banks because there is a permanent problem for the banks to provide dollars. She added that the CBE should revise its policies, which have been applied for months without success. “The aim of the restrictions on foreign currency was to keep the exchange rate at a suitable average, reduce the deficit and prevent money-laundering. The objectives of these policies were good, yet they did not reap fruit and failed to achieve any of their targets so revision is necessary,” Fouad explained. Producers, importers and consumers are not pleased with the policies, and the foreign currency market should be left to operate according to the laws of supply and demand, which would help to stabilise the market, Fouad said. She blamed the government for adding burdens to consumers. Prices are very high in Egypt, compared to other developing countries, she said, especially as Egypt suffers from high poverty rates. High prices have also not made Egypt a preferred destination for tourists, who find other countries such as Tunisia and Turkey better in terms of prices, she added. “To keep the foreign currency reserves at a proper level, the government should work to facilitate increases in production which would lead to reductions in imports. Production is the starting point of the process, not putting restrictions on foreign currency,” Fouad added. Effat Abdel-Ati, head of the Vehicles Traders and Agents Division at the Cairo Chamber of Commerce, said that the car market and spare parts market has been negatively affected over the past few months by the CBE restrictions. He said that importers currently pay customs duties at the official exchange rate, while the government had earlier discounted the dollar exchange rate for paying customs duties after April 2014. According to Abdel-Ati, the government does not have the right to prevent the import of any commodity, even luxury items, as long as the importers pay customs duties, which have reached LE3 billion over the past ten months. “The government should revise the regulations set by the CBE for the benefit of Egypt's economy. To solve the problem, officials should meet with business associations to discuss the issue,” Abdel-Ati added.
