Will the elimination of tariffs on some imported items be enough to bring down prices in the local market? Mona El-Fiqi seeks an answer In an attempt to reduce prices in the local market, President Hosni Mubarak issued Decree 103 of 2008 on 2 April to modify custom duties on some imports. According to the presidential decree which went into effect on Friday, tariffs on 111 import items were amended. Custom duties imposed on some strategic products including rice, cooking oil, cheese, butter, cement, steel, dairy products and some pharmaceuticals were completely eliminated. By decree, tariffs were reduced on several household products such as refrigerators, air conditioners, glass products and some materials needed for medical treatment and surgery. Moreover, the government announced that this decision is one of a package of procedures which will soon be taken to face high prices in local markets. Mubarak asserted that the government is committed to making the life of citizens easier. Minister of Finance Youssef Boutros Ghali said that Decree 103 was in response to changes in international prices of some essential food products, as well as steel and cement which are needed for the growing construction sector. Government officials expected that the directive will have a positive impact on prices, and that soon consumers will feel the price drop. The decree, according to Ghali, aims at bettering prices for low income citizens and achieving social justice in society. In response to Mubarak's instructions, Prime Minister Ahmed Nazif declared that bread lines, which represent a serious burden on consumers, will be completely eliminated by the end of April. On the other hand, the government announced that there will be a 15 per cent rise in the salaries of civil servants in July 2008. Moreover, Nazif added, the government's new budget includes raising salaries from a sum of LE35 billion to LE72 billion. This is in addition to a LE22 billion increase in the budget for subsidies and social solidarity pensions. According to him, the government is currently consulting with the People's Assembly on the financial resources to cover this increase. The reaction on the street to the news varied. While some consumers were happy that tariffs are down and salaries are up, others were unsatisfied. Karima Ali, a housewife and mother of three, was pleased that her husband's salary will be able to afford their household budget. "I hope that when we get the raise in July, as the government promised, our income will cover my family's needs," stated Ali. The response was different when Al-Ahram Weekly asked Ahmed Zakaria, a civil servant and father of two, who does not believe that prices will drop. "Prices will remain high even if there is a minor decrease on import tariffs," he asserted. "It will simply go to the pockets of importers and wholesalers." Experts agree that the new procedures are on the right track but are not enough to cut prices. Khaled Hamza, former chairman of the Imports and Customs Committee at the Egyptian Businessmen Association (EBA), explained that the abolishment of custom duties on some strategic products is a good step, but will have an insignificant impact on prices "since tariffs on these products were already at a minimum level." For example, customs on cooking oil were five per cent and rice a mere two per cent. Hamza expected prices to drop between two to five per cent, which means that consumers will not feel a big change. He further warned that if international prices continue to increase, the cost of products on the local market will rise regardless of custom cuts. Hamza feels that raising salaries is vital for the majority of people, but will negatively impact inflation rates. The problem, he explained, is that product supply on the local market is short therefore prices will continue to jump. The solution is for the government to work on resolving problems facing the industrial and agricultural sectors, hence increasing production and supply. Salah El-Amrousi, an economic researcher at the Arab and African Research Centre, agrees with Hamza that the government's recent decisions are not enough to overcome the price crisis. El-Amrousi believes there is an obvious distortion in the economic structure, therefore these measures are not real solutions but mere painkillers. "There is no real growth in the economic sector," he argued. "The annual growth rate of 7.1 per cent does not indicate there is development in the industry and agriculture sectors. Rather, it is in sectors such as services which raise demand on products not vice versa." El-Amrousi was also critical of the decision to eliminate tariffs on steel and cement imports, since the sectors of construction and real estate are not considered an addition to industrial production but help raise capitalisation. According to this expert, the government should change its economic policy and pay more attention to developing mass production in important sectors, such as industry and agriculture, in order to achieve self-sufficiency.
