Egypt's importers have been crippled by an acute foreign currency shortage that has prompted the government to take measures to trim unnecessary imports in a bid to ease demand for dollars. The country has been grappling with a foreign currency shortage after the political instability in recent years that has strained its foreign currency earnings. The crisis became graver when tourism receipts fell sharply after the downing of a Russian airliner over Sinai last year. The scarcity of dollars in the banks has led to a thriving black market that sold the dollar at 90 per cent more than the official rate, set at LE8.78, before the floatation. The floatation of the pound was intended to eliminate the black market and be part of other economic reforms that aim at kick starting the economy. Along with the floatation, the Central Bank of Egypt (CBE) also took other decisions including the cancellation of a previous decision to prioritise essential goods when it comes to providing importers with foreign exchange. This means that the banks are now obliged to provide dollars to all importers regardless of the nature of the goods they are importing. This should be good news to importers, especially of non-essential goods, who found it difficult to obtain lines of credit from the banks in the past. However, some importers are still suffering. Ahmed Shiha, head of the Importers Division at the Cairo Chamber of Commerce, said that the main obstacle to import activities lay in the ministerial decree that requires all exporters of a variety of finished products, ranging from chocolate to ready-made garments and children's toys, to register with the Ministry of Trade and Industry. Those who fail to do so face a ban. The decree was issued in December 2015 as part of a wider effort to impose stricter controls on imports in the face of a mounting shortage of foreign currency. It was a bid to put a break on imports, which had grown exponentially to around $70 billion compared to exports which stood at around $20 billion. The list of imported goods whose suppliers needed to register included dairy products, confectionery, bottled water, kitchenware, diapers, washing machines and various home appliances. Shiha said that only 60 to 100 exporters had registered with the ministry, while many others had presented their papers but had not been registered yet. As a result, many importers had been unable to acquire lines of credit from the banks and had stopped importing, he said. Although the CBE has lifted the prioritisation of essential goods, Shiha said that some importers, of what the government categorises as supplementary or non-essential goods, have not been able to acquire credit from the banks. The banks have a “waiting list” of imports to which they are giving priority in terms of financing, he said. “The bank told me today they could not provide me with dollars to import the raw materials I need for production,” said one owner of a local company who preferred to remain anonymous. He said that although he was not importing luxury goods, he had failed to get dollars from the bank, prompting him to get them from exchange bureaus at a rate slightly higher than the bank's. Shiha said that many producers had been unable to secure the dollars they needed to import raw materials that are crucial for production and that many of them had accordingly stopped operations. However, some other importers were able to obtain dollars from banks, with one source at one of Egypt's private banks telling Al-Ahram Weekly that his bank was opening lines of credit to importers, with albeit lesser value. An impediment facing importers after the floatation has been the instability in the value of custom dollars, which is the value of the dollar against the Egyptian pound that is used in the calculation of the custom tariffs imposed on imports. After floatation, the value of the currency is now being determined by supply and demand, which means that it could vary from one day to the next. Egypt's Customs Authority decided last week to link the custom dollar value to the daily dollar prices published by the CBE. “The instability in the value of the custom dollar will make it hard for producers and importers to determine the price of commodities, causing confusion in the market,” Shiha told the Weekly. He added that the value of the custom dollar had increased 80 to 100 per cent after the floatation. The custom dollar stood at LE17.63 last week, compared to LE8.78 before the floating of the pound. This has in turn increased imports bill by 80 to 100 per cent, Shiha said. “This will all be borne by the consumer, as the prices of commodities will go up,” he said. To avoid market and price instability, Shiha recommended that the government set the custom dollar at a fixed rate for a year until the pound/dollar exchange rate stabilises. The Home Appliances Division at the Cairo Chamber of Commerce has also requested the government to set the value of the custom dollar for a period of time. Fathi Tahawi, the division head, said in a statement last week that stability of the custom dollar would help prevent price increases. However, the head of the Customs Authority, Magdi Abdel-Aziz, said in a statement that the custom dollar value could not be fixed for a specific period of time because the value of the dollar had become variable after the floating of the pound. Although this will increase customs revenues, it will also shrink total imports, Abdel-Aziz said. Shiha said that the situation had prompted many importers to halt their activities, negatively impacting the market and decreasing the supply of goods and possibly paving the way for monopolistic practices and more price increases.
