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Sunday, 21 July 2019

Gov’t unveils new EGP 6 bn per year export subsidy framework

Gov’t unveils new EGP 6 bn per year export subsidy framework: The government unveiled the details of the long-awaited new framework for disbursing export subsidies. The new framework would disburse EGP 6 bn per year in export subsidies through the Export Subsidies Fund starting from FY2019-20, according to a statement by the fund released on Thursday (pdf). Some EGP 2.4 bn (or 40%) of the EGP 6 bn will be disbursed as a cash payment to exporters, the Export Subsidy Fund’s board said upon ratifying the framework. 30% of the annual disbursement, or EGP 1.8 bn, will be doled out through tax breaks and cuts to payments owed to the Finance Ministry. The remaining EGP 1.8 bn will be spent by the fund to “build up Egypt’s export capacities.” This would mean funding to developing facilities as well as promoting Egypt’s exports abroad, the statement goes on to explain.

You get bonus points if you raise exports, export to Africa, or are an SME: Corporations and medium-sized companies that raise their exports by 20-30% y-o-y will see their export subsidies raised by 15-30%. Small enterprises that have managed to increase their exports 20-30% can expect a 20-30% increase their annual allocation of export subsidies. The fund will continue to set aside an additional EGP 40 mn in subsidies to those exporting to Africa, the statement says.

Conditions: To benefit from these incentives, exporters need to source 40% of their production inputs domestically, the ministry said.

The program has the endorsement of a number of Egypt’s business associations, including the Federation of Egyptian Industries, the statement assured.

Mechanism for payment of overdue subsidies yet to be clarified: While the statements give us clarity on how the fund will run moving forward, it provides very little detail on the mechanisms for how outdated and overdue export subsidies are to be paid. Here’s what we know: The government is currently making the determination on how much export subsidies are due on a sector-by-sector basis, said Trade and Industry Minister Amr Nassar. The Finance Ministry is planning to publish a detailed accounting of what is owed by the government before settling up with the Export Subsidies Fund, Minister Mohamed Maait said. The statement also implied that the fund will set up an electronic platform to facilitate the red tape in applying for overdue export subsidies. We had noted reports on Thursday that the Madbouly Cabinet had approved a mechanism for repayment, whereby exporters could receive discounts on their obligations to the electricity, oil, and investment ministries and claim redeemable IOUs from the Finance Ministry.

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