How Egypt survives its import crisis in 2022: struggle and resilience

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Walking down the massive isles of IKEA at the famous Cairo Festival City Mall in New Cairo on a Friday evening, Diana notices that some shelves are completely empty. She says, “That was the first time I ever saw the store so empty. It was very unusual. Some items remained unavailable for weeks, and never seemed to get restocked”. Diana Magdy, a 30-year-old preparing to move out to a new apartment, expressed her frustration with the difficulty in a supposedly simple process of buying some home appliances and pieces of furniture for her new home. “I kept getting told that the missing items would be back in stock soon, but it’s been over three months and nothing has changed,” she added.

26-year-old Mahmoud Kamal who often goes to the mall to shop for clothes found himself in a similar situation when he noticed that many of the largest clothing brands were displaying items from the winter collection and the last season. “I started seeing hints of the issue in June when it was difficult to find my size or the color I needed. Now, you can hardly find new items in stores at all, and it puzzled me until I was told they can no longer import their items as usual,” he said.

It all started in February 2022 when the Central Bank of Egypt (CBE) issued a decree to require importers to use letters of credit (LCs) to finance imports. That new rule eliminated the ‘cash-against-documents’ system, which required traders to pay a lower payment in advance and pay the rest later. Importers now must pay the full amount to banks in order for the import process to be completed. The decision aimed to complement the activation of the Advanced Cargo Information System (ACI) to raise the quality level of goods imported from abroad, as well as reinforce the governance of the foreign trade system and the protection of industrial national sovereignty. However, several commodities were exempted from the decision, including some pharmaceuticals as well as basic food commodities.

Nevertheless, the CBE’s decision was worrisome to businesses that relied on import to conduct their day-to-day operations. Consequently, the Federation of Egyptian Industries (FEI), the Egyptian Businessmen’s Association (EBA), and the Federation of Egyptian Chambers of Commerce (FEDCOC) sent Prime Minister Moustafa Madbouly an official a letter to demand amending the decision due to its expected negative consequences on the availability of products and the Egyptian market as a whole.

Shortly after the decision was issued, President Abdelfattah Al-Sisi directed that production requirements and raw materials be excluded from the recently-applied import procedures. However, to what extent was that decision helpful for improving the situation? And how bad is the situation?

According to businessmen in the market, household and clothing items are only the half of it as far as the shortage of commodities are concerned in Egypt. Several other sectors are also seeing a great and rapid shortage of products in the Egyptian market, and many citizens are starting to feel it firsthand.

Engineer Mohamed El-Nemaky, owner of a Mazda cars maintenance center in the neighborhood of Mokattam, makes a living from two main things: craftsmanship and imported spare parts. Amidst the import crisis, El-Nemaky says his business is threatened and made all the more difficult because many spare parts are no longer available in wholesale, or at all.

“A few months ago I was dealing with the extremely high prices of the spare parts needed to fix cars, and while that was a difficult situation to be in, at least the items were available. Now, I find that many items aren’t even available in the first place. This has been causing a major slowdown in the center and greatly affecting my business’s activity and income,” he said.

Price increases has been a common complaint among Egyptian consumers for the past few years, especially with the worsening supply chain crisis and the high demand on basic commodities amid a global food crisis triggered by the Russia-Ukraine war. Taghreed Hany is a mother and a wife who has been having increasing difficulty over the past few months keeping up with the increasing prices of basic commodities despite their availability in the market. “It’s not at all hard to obtain basic commodities even though there is clearly an issue with importation, but the prices of these commodities are going up, and salaries see very little increases on the other hand,” she said.

Agreeing that such increases have been an obstacle for many individuals and businesses alike and that the import issue hasn’t helped make the situation any better, El-Nemaky says, “To my mind, the prices of some goods and services have at least increased by 150 percent since the last depreciation of the Egyptian pound and the import decision that followed. The process of a car oil change now costs a regular customer over EGP 1000 and it used to cost EGP 680 before. Imagine how little profit margin we’re left with. The situation is undeniably hard for both service providers and consumers.”

A good question to ask at this point is in what ways exactly are these circumstances affecting businesses in Egypt at a time when its economy is supposed to be growing? Mohamed Khamis Shaaban, chairman of the 6th of October Investors Association and a member of the board of directors of the Egyptian Federation of Investors Association (EFIA), told CNN Arabic that if the current import system continues without executive regulations to reduce the resulting negative effects, many factories will eventually be forced to shut down.

For his part, the CEO of the Eastern Company, SAE (a large tobacco company in Egypt), said that larger companies like his can survive these challenging circumstances compared to other small factories, according to media reports. He adds that his company is one of the lucky few who enjoy good financial solvency (dollar proceeds that facilitates import). It also has a large stock of tobacco, thanks to its large custom warehouses. On the other hand, other traders and small and medium investors and manufacturers could be dealing with a heftier burden.

“One way to overcome this hurdle is to locally manufacture some of the products that are otherwise imported”, suggests Tarek Selim, a professor of economics and strategy at the AUC School of Business. He believes that focusing on local manufacturing along with increasing exports can be a good coping mechanism with the situation, at least temporarily. “Before we look at the crisis we must look at what caused it. The devaluation of the pound was a natural result of two shocks: the Russia-Ukraine war, and the incomplete recovery from the repercussions of COVID-19 on economies. Egypt was specifically vulnerable to these shocks but this is an excellent chance to show resilience and make the best out of this situation,” explained Selim. He went on to explain that this is a long-overdue chance for many industrial exports to grow significantly as more focus is shifted towards exports instead of imports, including but not limited to natural gas, fertilizers, ceramics, leather products, textile, and gold.

In March of this year, Egypt’s Minister of Trade and Industry Nevine Gamea announced that the government had identified more than 130 products that could be manufactured domestically to slash its unruly import bill, according to Global Trade Review. These products include furniture, pharmaceuticals, makeup products, construction materials, and others, according to El Watan News.

Bringing local alternatives into the market has clearly been on the Egyptian government’s mind for a long time now and is an important part of its plans for surviving tricky global economic situations. In April 2022, President Al-Sisi directed the government to launch an initiative to support and localize national industries in an attempt to create more reliance on local products and reduce imports by reinforcing the role of the national private sector in localizing many industries in Egypt, while providing several incentives for manufacturers, according to CNN.

Tarek Selim notes that enhancing local supplies is a process that naturally takes a lot of time and won’t happen overnight. “It also requires that the state provides extremely strong incentives to encourage local manufacturing,” he said.

On his outlook for the future, Selim says that the worst scenario in the case of the import crisis worsening is seeing a state of recession in the Egyptian market. He adds, “But I believe import procedures will inevitably be eased up soon by the CBE to avoid halting the production cycle. This situation is temporary. Until it’s over, we could see a bloom in exports and tourism, with the possible disadvantage of a permanent increase in inflation”.

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