Despite loaning and divestment: The greenback shortage still blocks Egyptian imports

The crisis of dollar scarcity in Egypt has been exacerbated again after short weeks of calm, filled with hopes for a breakthrough. Recently, manufacturers and importers demanded a quick provision of hard currency to face production crises in several sectors, affected by the decrease in customs releases of goods held at ports in the past weeks.

As a result, prices of products, especially strategic food commodities, continued to rise. The annual inflation rate last January was 26.5%, the highest in five years, while the monthly inflation rate was a record, as it recorded 4.9%. According to official data, food prices rose 48% year-on-year and 10% month-on-month.

This comes despite Prime Minister Mostafa Madbouly celebrating his government’s efforts to release goods held in Egyptian ports about a month ago, noting that there are goods worth only $5.3 billion still pending at the time after the release of goods worth nearly $14 billion starting from last December.

Temporary breakthrough

Traders and manufacturers explained that the breakthrough in the customs release crisis lasted only for several weeks, with the start of the new EGP price liberalization stage last December and January. Still, it was not up to the market’s needs, included only some sectors, and needed to be more continuous. The government dealt with the import and customs release crises based on limiting the use of the dollar for necessities. This ” breakthrough ” focused on providing dollars to release food, medicine, production requirements, and fodder. Still, the finished goods came from them only for a small amount, while the bulk continued to be held in ports.

Even the sectors for which the government provided the dollar did not get their real needs. For example, during the period from October 16, 2022, to February 16, 2023, the government released 2.6 million tons of fodder production requirements at a rate of approximately 650,000 tons per month, while the monthly needs of feed factories amounted to 900,000 tons, according to Tharwat Al-Zaini, Vice President General Federation of Poultry Producers. This led to a decline in poultry production from 4.5 million to 2.5 million chickens per day and a decrease in table eggs from 40 million eggs to 25 million eggs per day, which was strongly reflected in prices. The price of a kilo of chicken increased from 33 pounds in February 2022 to 120 pounds this February, and the cost of a carton of eggs increased from 55 pounds to 125 pounds.

Customs releases were limited to goods stacked in the ports for months, which the government celebrated. Still, it ignored the fact that thousands of containers entered the docks again, exacerbating the crisis of non-customs release of those containers. Banks also apologize for procuring dollars to import new shipments. This is supported by what the head of the Medical Supplies Division at the Chamber of Commerce, Muhammad Ismail, said that despite the release of several shipments during the past two months, the import of any new shipments is not available and that banks are asking them to wait for an unknown time. This exacerbated the shortage of medical supplies and some critical medicines to appear very clearly in heart and orthopaedic surgeries, patients with diabetes and chest diseases, and at lower levels in other conditions.

The head of the Export Council for Printing, Packaging and Paper, Ahmed Jaber, accused the government of contributing to the rise in prices due to its “narrow point of view” of customs releases, explaining this by saying: “The government directed its questions to the Federation of Chambers of Commerce and Industries, asking them for information about broken food commodities. But the question was based on a narrow point of view, looking at the foodstuffs themselves without regard to packaging and printing requirements, for example. So, the answer was also based on this question and was limited to food commodities only, so the commodities went out, but the packaging requirements in the ports remained idle. In addition, from Jaber’s point of view, the government focused on large shipments only. It gave them a priority, ignoring smaller loads, despite their significant impact on prices if they were related to sectors that witnessed a considerable shortage in supply. “The releases, for example, did not include sticky paper, which is imported in smaller shipments at lower prices, and the local market relies on it for packaging,” according to Jaber.

Losses to consumers and merchants

The dollar scarcity crisis caused importers to afford substantial financial losses. The head of the Engineering Industries Division, Muhammad al-Muhandis, says: “The importer deposited the shipment value in pounds with the banks months ago and waited for the dollars to be provided by the banks. But the exchange rate changed more than once, forcing the importer to deposit additional sums of money in pounds to equal the value of the shipment estimated in dollars. Nevertheless, Banks are still reluctant to procure dollars and transfer dues to suppliers abroad. As a result of the banks’ delay in transferring suppliers’ dues abroad, many importers from various sectors lost their good relations with suppliers abroad. Sometimes, some suppliers decide to move the shipment to another country and sell it there. At the same time, the importer remains obligated to pay all fines and dues to the shipping companies and the customs authority throughout the period the shipment is in Egyptian ports, according to the al-Muhandis.

In addition, the head of the Sugar and Sweets Division of the Federation of Industries, Hassan al-Afandi, added that as a result of procrastination on the part of banks, importers pay for the delay in unloading containers to the shipping companies that own these containers. These fines are paid in dollars or euros, in addition to what is produced in pounds to customs storage companies in the form of floors and shipment guards, which significantly raises costs and disrupts the capital cycle, causing huge losses. These constraints were expressed by the Standard & Poor’s Global Purchasing Managers’ Index, which indicated that the activity of the non-oil private sector contracted for the 26th consecutive month last January as a result of the increase in the costs of purchasing raw materials at its fastest pace in more than four years, as the depreciation of the pound increased the inflationary pressure, prompting companies to reduce purchases of raw materials at their sharpest pace in the 12-year history of the Purchasing Managers’ Index survey.

The excess costs were transferred to the prices of commodities in the market to the consumer, as everyone carries these costs on the final price, which foreshadows a continued rise in inflation during the coming period, which may also worsen with the approach of the annual consumption season in the month of Ramadan (next March). The only way now to stabilize prices is to provide dollars to importers. Still, the government has not developed an elaborate plan to sustain dollar flows, especially with the faltering import of production requirements needed to export finished products in exchange for a return of hard currency. So that, until the dollar is saved, the consumer and the importer will continue to pay the price.