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Sunday, 2 October 2022

POLL- Local products are edging out more expensive imported goods

Are import shortages a blessing in disguise for local producers? Amid import restrictions resulting in shortages of imported goods, consumers have been increasingly turning to locally produced options with cheaper price tags, the results of an Enterprise survey show. Although President Abdel Fattah El Sisi indicated last week that the government could resolve problems facing manufacturers within two months, it appears that consumer behavior has already shifted.

The price pinch: The survey shows that 78.5% of respondents stopped purchasing imported products with 63% of them attributing their behavior to high prices and 37% blamed it on product unavailability.

It’s a matter of affordability and availability — and the impetus for shifting to local products is correlated to income levels: Broadly speaking, we found that higher-income respondents cite product availability as the bigger reason to purchase local goods, while a larger proportion of lower-income respondents cite the prohibitive pricing of imported products. We break down this correlation between income brackets and their reasons for going local:

  • EGP 30k or more per month: Respondents are split equally down the middle, with half high prices and half citing product unavailability for their shift to local products;
  • EGP 15-30k: 52% cite high prices and 48% blame product unavailability;
  • EGP 8-15k: 87% stopped buying imported products due to high prices, while 13% cited product unavailability;
  • Less than EGP 8k: 67% of respondents in this income bracket stopped buying imported products due to high prices, while 33% blamed it on product unavailability.

But shunning imported products hasn’t necessarily meant local products are filling the gap: The vast majority (73%) of respondents said they found alternatives for only some of the products they typically purchase, while 23% said there are no viable local alternatives at all. A mere 4% said the local market has alternatives for all of the imported products they previously purchased.

Available local alternatives: Consumers found some local alternatives for cosmetics, healthy food products, and clothes.

Bang for your buck? In terms of value for money, 65% of the respondents rated local alternatives as medium, 25% as poor, 9% as good, and only 1% said they are excellent.

Local consumers are ditching imported products: Here’s how many of the survey respondents stopped buying imported products in each of the following product categories: Cosmetics (65%), car parts (30%), furniture (25%), kibble (21%), medicine (21%), school supplies and stationeries (13%) and child care products (13%).

Local high-quality alternatives are limited: Consumers couldn’t find high quality local alternatives at reasonable prices in the product categories of clothes, skin and hair cosmetics, and car parts. “The car parts I used to buy for EGP 400 four months ago now have a higher price tag of EGP 1k due to market shortages, and imported motor oils are unavailable and their local alternatives are not as good,” Karim, a purchasing manager at a food company, told Enterprise.

Although some companies are working to plug the gap: Private sector player Eva Pharma, for example, is taking stock of the imported products that are currently in short supply and is working on locally manufacturing alternatives, a company representative told Enterprise.

People are turning to cheaper alternatives: Consumers who spoke to Enterprise were looking for low-cost, local or imported alternatives to high-priced office supplies, including pens, bags, paints and cardboard. On Facebook, users created groups and pages such as Al Ghaly Leh Badil to share and review low-cost local alternatives to high-cost imported products. “I look at the price tag and choose the product that is within my budget,” Shaimaa, a journalist, told us. She also turned to cheaper local brands of paper towels and household cleaning supplies. Shaimaa found local products of good and medium quality in the product categories of beauty and body care. Fatma, who works at an oil services company, told Enterprise she gave up nearly all imported products, whose prices have nearly doubled. She looks for available imported products with a cheaper price tag only if local products don’t do the trick.

But the reviews are mixed: For Shaimaa, the high prices of imported baby diapers forced her to buy cheaper local and imported brands, but said the local products “are not the same quality as the imported ones.” “These local products are cheaper and have better discount offers. But they are not of the same good quality. If you compare imported and local products, the local quality is 5 out of 10,” Fatma told us. Other consumers told Enterprise they are ditching imported chocolate spreads, for example, and opting for a local product because it “tastes better.”

Could DIY products serve as an alternative? Sarah, a translator, has started preparing food for her cats from home “or buying from places that sell home-made food for pets, and I completely stopped buying dry food because of its high price.” The dry cat food she previously bought more than tripled in price to EGP 700.

Why are local alternatives lagging behind? For starters, it’s tough for any country to produce all of its needs locally — and Egypt’s local industry is already a far cry from self-sufficiency. “No country is capable of producing everything on its own. Countries depend on each other for production inputs,” Mohamed El Bahy, Federation of Egyptian Industries’ (FEI) customs and tax committee head told Enterprise.

Part of it is also a perception issue: Fatma, for example, says she is uneasy about relying on local alternatives for her mother’s diabetes and blood pressure meds, and even when a doctor prescribes a high-quality local alternative, she finds it difficult to secure. But most meds have multiple alternatives in the local market and “are almost equivalent [in terms of quality] to any imported products, but consumers in Egypt tend to think that imported or expensive products are better,” El Bahy said.

And some things are harder than others to localize: Pharma raw materials, for example, “are very expensive for us to start producing locally,” El Bahy explains. Import restrictions led many pharma factories to suspend production because they had no alternatives, he said. The furniture industry also relies heavily on imports because Egypt is “not a country that produces wood — whether natural or manufactured,” said Mahmoud Abou Shousha, a member of the FEI’s furniture division. Abou Shousha anticipates many furniture workshops and factories will shut down in the next few weeks unless there is a breakthrough in the import situation.

These things take time: “We can’t transition from a net importer to a manufacturer overnight. This is a very difficult task and requires time,” head of the Internal Trade Committee of the Importers Division of the Federation of Chambers of Commerce Matta Bishay told us.

But, in any case, relying on imports to some degree is healthy for market competition: “If the demand for local alternatives increases, prices will rise accordingly,” and imported products maintain market competition, Bishay told Enterprise.

Your top industrial development stories for the week:

  • President Abdel Fattah El Sisi signaled that import challenges facing manufacturers will be solved within two months.
  • Auto sales were down by more than half in August compared with the same month last year, as the market continues to struggle with import barriers.
  • The government’s automotive committee held its first meeting headed by Prime Minister Mousatafa Madbouly last week.
  • Innovate Egypt is set to invest EGP 150 mn to locally produce EVs, including electric tuk-tuks, in partnership with the Arab Organization for Industrialization.

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