Egypt: An expected rise in prices, increase in inflation and unemployment

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Egyptians are awaiting a new wave of price hikes, with the decision to ban importing any foodstuffs without the approval of the Food Safety Authority set to take effect within days. According to officials in the Cairo Chamber of Commerce, the decision will lead to an increase in the prices of many commodities as a result of loading the costs of imported goods with new financial burdens. The decision applies to every food establishment or food importer, whether it is a regular citizen or someone who undertakes the activity of importing food with the intention of re-using it or putting it up for sale in the local market. The authority stipulated that importers pay an annual subscription amounting to EGP 20,000 (approximately $1,250), in addition to collecting EGP 5,000 (approximately $320 dollars) as inspection fees for the importer’s stores. There are also other costs that the importer will bear due to implementing the modifications and designs determined by the authority, which will lead to problems between store owners and tenants on the dependency of who bears these costs, which will often be burdened to the consumer.

According to observers, if the decision comes into effect, about 50 per cent of the importers, who are small businesses, will exit the market due to their failure to bear these burdens. Thus the major importers will be alone in the market and control prices. This will impose more control over the imported food market in Egypt, especially carcinogenic foods. It will also create a kind of balance between the national product and its imported counterpart.

Ahmed Abdel Fattah, an owner of an import and export company, says, “The decision will be in the interest of the big importers, after the exit of small importers from the market, who are the majority, as they will not bear the financial burdens and new requirements imposed by the Food Safety Authority.” Abdel Fattah pointed out, “The decision did not give importers, especially the young ones, an opportunity to reconcile their situation, so the implementation of the decision will start next Saturday, as there are shipments that have been contracted and not released, which will cost importers high fines.” It is expected that prices will rise during the coming period after the enforcement of the decision, due to the exit of most importers of food commodities from the market circle. The majority of them are young and get a small profit margin, in addition to the fact that the entry of adults on the import line of these goods will create a state of near monopoly.

Mohsen Al-Shabrawi, one of the importers, said that the Food Safety Authority’s decision would cause confusion in the markets and a delay in the exit of goods from the ports, which increases the import cost of a single message. Al-Shabrawi stated that the decision has created confusion in the import sector, especially in light of the negative repercussions of the coronavirus and the high freight prices for imported goods in light of the decline in purchasing power. He indicates that all agencies are taking samples, and the result may vary, which may lead to large losses for the importer. Faced with this, economic analysts’ expectations about Egypt’s average inflation rate during the current year varied. Still, most expectations indicate its stability until the end of the current fiscal year, and then expect it to rise again.

Radwa al-Swaify, head of research at Pharos Investment Bank, expected that the new year would witness an increase in inflation. In the same context, Capital Economics believes that the inflation rate is likely to accelerate in the coming months, in light of expectations of an increase in food prices and a recovery in oil prices. In a research note, the agency expected the Egyptian pound to decline in the coming months, which would add to the pressure on inflation figures. However, Capital Economics ruled out that the rate would exceed the central bank’s target average.

Alia Mamdouh, the chief economist at Beltone Investment Bank, believes that inflation is expected to remain within the central bank’s targets of nine per cent (± three per cent), and at an average of 4.8 per cent during the remainder of the current fiscal year. The macroeconomic analyst expects that inflation rates will only increase with the beginning of the fiscal year 2021-2022 and with the central bank making additional interest rate cuts. She indicated that commodity prices might rise globally during the third quarter of 2021, with the spread of vaccines worldwide and the rise in commodity prices that may accompany a possible breakthrough between China and the new US administration led by Joe Biden. As Renaissance Capital forecasts, the unemployment rate may increase over the next two years, to reach 9.7 per cent.