Egypt walks from goods’ accumulation at ports to securing commodities
Updated 1/10/2023 12:00:00 PM
The Egyptian markets have witnessed a commodities shortage over the past months due to the accumulation of goods at the ports. However, the government began to take measures to secure foreign currency, in order to gradually release the stuck goods at ports for the importance they set, prioritizing food commodities, food manufacturing components, medicines, and production requirements.
Accumulation and Release of Goods
During the second half (H2) of 2022, many goods were piling up in the Egyptian ports due to the foreign currency shortage caused by the decisions taken earlier. In February 2022, the government announced the necessity to use letters of credit (LCs) for financing imports, in order to control foreign exchange (FX) market. “The decision made by the Central Bank of Egypt (CBE) requiring importers to use LCs was a must to control the foreign currency in banks, and to control the USD exchange rate in black market,” Mohamed Salah, Compliance Agent at the Commercial International Bank (CIB) tells Arab Finance. “We encountered clients facing an issue with the decision because not all foreign suppliers accept to open LCs, and it was not easy for banks to open LCs to all clients as it is a commitment to the bank, especially amid the unavailability of foreign currency at banks."
The LCs has restricted many importers, which led to the blocking of goods at ports. The accumulation of goods has led to a shortage in supplies that are usually imported, such as milk formula for infants with food allergies. Tarek, a 35-year-old father of a child with milk protein intolerance tells Arab Finance: “In April, we were searching hard for the lactose-free formula until we find one, but lately, we are finding the milk formula easily.” Additionally, it affected the availability of several medications. Mohamed, a 40-year-old pharmacist and pharmacy owner, tells Arab Finance: “Many medicines were scarce, but lately the situation has improved. The medicines were not totally unavailable, but it was really hard to get them.”
However, the CBE has been working with several ministries to gradually release the stockpiled goods.
President Abdel Fattah El-Sisi issued directives for the new governor of the CBE Hassan Abdullah to work closely with the government to solve the problems caused by the LCs decision.
Therefore, the Egyptian government took fast steps when it found that the accumulation of goods led to price increases after many commodities became scarce. During the period from December 1st to 23rd, 2022, $5 billion worth of goods were released.
In addition, the period from December 24th to 30th, 2022, witnessed the release of goods and merchandise worth $1.236 billion, bringing the total value of released cargoes to more than $6 billion in a month, Prime Minister Mostafa Madbouly said on the last day of 2022.
Since October 2022, the government has been working with the CBE to help importers secure foreign currency for their goods. “The government’s direction is to gradually left import restriction, in order to allow importers to start securing goods bit by bit in light of foreign currency availability in banks,” Salah adds to Arab Finance.
Finally, in December 2022, the CBE ended the use of the system requiring importers to obtain LCs for their purchases and returned to the cash against documents (CAD) system for importing goods.
Securing Foreign Currency
Egypt still has stuck goods at its ports that are needed to be released in the short term. However, in order to release these goods, the country needs to secure foreign currency to be used in the process.
The Prime Minister stated during the government's meetings with merchants and various chambers of commerce that there are arrears for suppliers regarding the goods that arrived and were released, with the suppliers needing to collect those arrears immediately, in order to obtain the same credit facilities on the basis of which they are dealt with, which gives them a grace period for payment after the arrival and entry of the goods.
The shortage in foreign currency has been caused by several things, such as the black market and the strictly managed exchange rate. Therefore, one of the solutions should be ensuring a flexible exchange rate. Thus, it is vital for "the value of the Egyptian pound to be determined freely against other currencies, which would avoid the build-up of a chronic imbalances in the demand for and supply of foreign currency in Egypt and preserve the FX reserves of the central bank," according to the International Monetary Fund (IMF).
As a part of the efforts to secure foreign currency, since its inception, the Sovereign Fund of Egypt (TSFE) has contributed to attracting 43% of the total foreign direct investment (FDI) with 14 projects at a value of about EGP 37 billion, which focus on a number of the Egyptian economy’s key sectors.
Madbouly confirmed that a plan has been developed to pay the arrears sequentially in coordination with the banking sector. Accumulations are currently being dealt with for an extended period, which will not be completed. The government is currently moving according to a clear plan, and during the next few weeks, Egypt will begin to overcome this crisis.
By Sarah Samir
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