What the gov’t’s indicative pricing for strategic commodities means for industrial players: At the end of last year, the Supply Ministry announced it will roll out a “fair price” list for several strategic commodities amid soaring inflation, in a bid to control price gouging. The indicative pricing — which Supply Minister Ali El Moselhy stressed would not be a form of price controls — is set to be imposed on 15 commodities as a starting point. Meanwhile, the Senate is currently debating a separate proposed bill that would impose price controls on basic commodities for a controlled period until market volatility subsides and prices begin to cool down. Industry players Enterprise spoke with are divided on the effectiveness of indicative or mandatory pricing frameworks on keeping market prices in check, but all agree that ensuring the availability of raw materials is the most important variable.

REFRESHER- Annual urban inflation hit 25.8% y-o-y in January, marking a fresh five-year high. Food and beverage prices were once again the biggest driver of consumer price inflation, rising 48.0% y-o-y in January, according to Capmas figures. The government has been working to tamp down food inflation for the past several months, extending until at least mid-March a cap on the price of rice, in addition to previously setting partial caps on the price of unsubsidized bread.

Manufacturers are coping with shortages and other cost pressures: Although there was no consensus among manufacturers and retailers we spoke with on the efficacy of indicative or mandatory pricing, all of our sources agreed that manufacturers are still struggling with shortages of materials. Between supply chain snarls, soaring international prices of commodities, rising shipping costs, and recent FX difficulties here in Egypt, manufacturers are coping with several pressure points at the same time, our sources said. These issues are all raising input costs, which forces manufacturers to raise market prices, they said.

Not all industries are equally affected, our sources noted, with head of the Federation of Egyptian Chambers of Commerce’s oil division Ayman Korra pointing to vegetable oils. Vegetable oils are already subject to “strong” government oversight since oils are among the subsidized goods offered to some 70 mn citizens through their ration cards, which ensures that prices remain in check, Korra said. The Madbouly government has also been working to localize the vegetable oil industry as part of its broader localization drive, with several industrial complexes in the pipeline, we reported in a previous edition of Inside Industry.

But some industries do need a heavier regulatory hand, sources suggest: The poultry industry — which has seen market prices spiral over the past several months — must be subject to price controls, suggests Egyptian Poultry Association member Abdel Aziz El Sayed. The government should create a technical committee with producers to set a pricing scheme every 10 days or so based on the price of feed, as well as the cost of production and labor, while setting an income margin, he suggested. Feed prices have jumped to EGP 23k, from EGP 6.2k previously, which El Sayed suggests can be addressed through the same pricing committee allowing feed prices to change only to reflect fluctuations in FX rates.

And there are some industries that want to shake off price controls: Pharma players are trying to ease price controls imposed on the sector, particularly on “strategic” pharma products, in light of rising costs, head of the Federation of Egyptian Chambers of Commerce’s meds division Ali Auf told Enterprise. “Egypt is the only country in the world with a pricing committee for pharma products,” Auf said, explaining that companies need to submit formal paperwork to the Health Ministry committee to request product repricing.

Industry players suggest that a better solution to rising market prices would be to kickstart production at idle factories, which would help address the persistent supply and demand imbalance. “Resolving the idle factory crisis would help increase the availability of commodities and provide enough supply of all commodities,” head of the Tenth of Ramadan Investors Association Samir Aref told Enterprise. There are currently some 400 idle factories in the Tenth of Ramadan industrial zone alone due to different issues, Aref said.

There has already been some gov’t measures on that front: The government is pushing through new industrial licenses, after some 6k factories were waiting on approvals and licenses to begin operating, our sources told us. The Madbouly Cabinet recently awarded the single approval “golden license” to several large industrial projects and the General Authority for Freezones and Investment (GAFI) is currently evaluating proposals to expand the licenses offered to investors to include diamond and silver-tiered licenses that would be issued depending on each sector’s priorities, GAFI head Hossam Heiba previously told Enterprise.

Other steps industry players want to see: Encouraging consumers to purchase locally produced goods, rather than imported products, while quickly releasing new shipments of input materials from customs would go a long way towards increased local production to meet demand, Federation of Egyptian Industries Mohamed El Bahey tells us. With higher rates of local production and increased market competition, price controls would likely prove unnecessary and the government could simply play a regulatory role in monitoring distribution chains, El Bahey suggests. If the government does impose mandatory pricing, it must be done following careful studies of local industries and production costs, or else it would be seriously detrimental to investment and production levels, Korra says.