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Thursday, 25 August 2022

Is the central bank about to ease import restrictions?

Meetings held yesterday by Central Bank Governor Hassan Abdalla and key cabinet members have stoked expectations in some corners that they may be looking for ways to ease import restrictions that have hobbled everyone from manufacturers to retailers. The restrictions have been in place since spring as the nation has struggled with a shortage of foreign currency. Business leaders we spoke with yesterday are hopeful that Abdalla could review import rules brought in by his predecessor Tarek Amer in March — and they would very much like to be invited to a sit-down with the new CBE boss, who has now been on the job for just one week.

What’s prompting the optimism? Four data points — and a healthy dose of wishful thinking:

  • Abdalla met yesterday with senior figures in the banking community and has reportedly named as advisors two veteran bankers, including our friend Hisham Ezz Al Arab and Mohamed Naguib. Naturally enough, the FX crunch was a feature of the talks.
  • Reading a lot into a government statement: Newly-appointed Trade and Industry Minister Ahmed Samir told Prime Minister Moustafa Madbouly yesterday that officials are working on measures to expedite the import of raw materials and spare parts via documentary collection rather than L/Cs.
  • The usual workings of government: Ala Mas’ouleety’s Ahmed Moussa, whose rehabilitation as a source of information on government policy is nothing less than remarkable, said last night (watch, runtime: 3:21) that Abdalla, Samir and Finance Minister Mohamed Maait have been talking about how to facility the release of goods stuck in customs warehouses thanks to the restrictions.
  • An unconfirmed report in Bloomberg Asharq, which says the central bank has asked banks to provide it with estimates of their manufacturing clients’ hard currency needs through the end of the current fiscal year in June 2023.

What’s the business community hoping for? Speculation among importers and others we spoke with is that the inventory-taking Bloomberg Asharq reported could pave the way for the CBE to loosen rules requiring importers to use (L/Cs) to purchase non-essential goods, instead of the previous system of documentary collection — a move that has made it almost impossible for companies to import goods in a number of sectors.

Why you should keep your expectations in check:

  • Abdalla’s appointment of Ezz Al Arab and Naguib as advisors was classy and brings trusted private-sector players into the loop — but it’s one move in a long game of chess, not a sign that a solution to import restrictions is imminent.
  • Many importers have since May been able to use documentary collection to bring in production inputs and spare parts, when they got an exemption to the L/C rules. Samir’s advocacy for importers is an important sign he gets the nature of the problem, but it won’t make greenbacks appear overnight.
  • Cabinet officials have been talking about the FX crunch directly with the central bank since May.
  • As the regulator, the CBE already has the data it needs to estimate run rates through next year.

Oh, and there’s the small matter of where the greenbacks would come from when / if restrictions are eased. Solving the FX crisis is at the top of Abdalla’s agenda — we think it’s highly unlikely he would do anything more than ease restrictions for a very limited subset of critical imports until he knows where he’s getting firepower from — whether that’s more FDI from our allies in the Gulf, a fresh IMF loan, or both — as part of a wider plan to let the currency ease against the USD.

What are importers hoping for?

  • They want a sit-down with Abdalla, Mohamed Rostom, first secretary at FEDCOC’s importers division, told us.
  • They want to widen the number of industries that can use the documentary collection exemption for the import of raw materials and spare parts. “All raw materials required in industries should be exempted from L/Cs , including industrial equipment and others,” Mohamed El Bahi, a spokesperson for the Federation of Egyptian Chambers of Commerce (FEDCOC), told us. Not all industries have been able to access the exemption, importers confirmed to Enterprise.
  • They would like consumer goods to be exempt from the L/C requirement, too, according to Rostom, who said: “Stocks of consumer goods are diminishing amid continued supply hurdles and a loss of confidence by foreign suppliers in local firms because of blurry payment mechanisms,” he said.
  • And they want to be able to source FX from foreign exchange bureaus given the challenges they have sourcing greenbacks from banks, FEDCOC officials said. (Wait … haven’t we been down that road before?)

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