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EGYPT |
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CUSTOM DUTIES | REGULATIONS | UPDATES |
| UPDATES
Import
move boosts pound The November
19 decision by the new governor of the Central Bank of Egypt (CBE),
Mahmoud Abu Al Enein, imposing a three-month ban on the 'bills for
collection' system of importation was rescinded by Prime Minister Atef
Ebeid on November 29 in the face of massive opposition from Egypt's
business community. The ban was to have gone into effect from this month. The governor's
decision made the use of letters of credit compulsory for all imports in a
bid to slam the brakes on the use of precious hard currency for the
financing of imports, to reverse the trade deficit and to protect Egyptian
manufacturers. Almost half of
all importation has been conducted on a cash against documents basis or
similar means of paying once goods arrive in Egypt, rather than arranging
for payment in advance through bank-issued letters of credit. The CBE
governor's decision had caused outrage in business circles and pushed the
dollar to unprecedented heights. It topped the five-pound mark in the
black market for the first time in history as traders began to hoard
dollars to finance imports. Abu Al Enein
had told the Economic Committee of the National Democratic Party on
November 21 that his decision was aimed at protecting Egyptian industry
and to reduce unnecessary imports to save foreign currency reserves that
have been diminished in the aftermath of the September 11 attacks on the
United States, which caused a huge drop in tourism. Prime Minister
Ebeid's decision to provide banks with their foreign currency needs was
acted on by the CBE pledging $400 million to banks to help them meet the
hard currency requests of a long list of importers. "The
decision will decrease the demand for dollars, which will stabilize
prices," said the chairman of the Federation of Industries, Dr. Abdel
Moneim Soudi. "We should give priority to raw materials that are used
in production, otherwise some factories will have to close down," he
said. He added that industrialists would do their best to cut down on
unnecessary importation. "Some
factories were about to close down some of their production lines because
they did not have enough foreign currency to cover the letters of credit,
but the prime minister's decision saved them," said the chairman of
Borg Al Arab Investment Association, Muhammad Farag. "I needed
a spare part for my factory a few days ago. Usually when this happens, I
just order and pay on collection of the product. But after the CBE
decision, I had to do [the importation] through letters of credit, which
is more costly," explained George S. Basily, chairman and managing
director of the pharmaceutical company Acapi, and the head of the Badr
Investment Association. "The
spare part was $340, but there is a minimum charge of $150 for letters of
credit added to the actual cost of the imports, which is more than 30
percent of the cost of the spare part," he said. "That's why I
am glad the prime minister rescinded this decision." Although
Ebeid's decision was welcomed by most businessmen, many are angered by the
government's sudden policy changes. Already jittery investors are likely
to be driven away from a market where the rules and costs of doing
business can change without notice or apparent consideration of long-term
effects. "This is
a joke. The decision is similar to another one that was issued in 1985 and
had to be rescinded by a presidential decree because the decision-makers
discovered that it is harmful to the economy," one businessman, who
wished to remain anonymous, said. "However, someone else comes out of
the blue to institute the same decision that has proved wrong before, only
to be rescinded this time by the prime minister," he said. "I am
sure there is something dodgy behind the CBE decision. I bet certain
people wanted to sell some dollars and they wanted prices to go up like
this to make a few million pounds," another businessman suggested.
"Having sold their dollars, the decision can be rescinded and the
dollar is allowed to fall back to normal rates," he said. As soon as the
CBE decision was made, the dollar rose above the five-pound mark. Within
48 hours of the decision to reverse the order, black market dollars sank
to typical levels of around EŁ4.5. On December 2,
prices in the black market fell again, dropping to EŁ4.4, closing in on
exchange bureau rates of EŁ4.27.
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