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Promoting Industrial Growth and Encouraging Foreign Direct Investment in Egypt


EXPORT SUBSIDY PROGRAM

×
Home Page Introduction Issue-Specific Reforms Industry-Specific Reforms
Responsible Entities Earlier Editions Important Resources Comments & Suggestions
AR

Responsible Entities
 * Ministry of Finance 3 Problem(s)
 * Ministry of Trade and Industry 3 Problem(s)
 * The Prime Minister 3 Problem(s)

Export Subsidy Program pdf
 * Challenge(s)
 * |
 * Recommendation(s)
 * |
 * Status/Notes
   Rate Share Full Screen History

 * The continued support and incentives offered to industries result in
   financial obligations that exceed the current budget of the ESF; this
   practice affects its capacity to satisfy its obligations towards factories
   and business owners.



Responsible Entities
Ministry of Finance
-
Ministry of Trade and Industry
-
The Prime Minister

Date 6/30/2020

 * Set up a mechanism, whereby ESF’s debt owed to a business can be transformed
   into credit in favor of the business; the credit can then be used by the
   business to pay any dues or meet other delinquent obligations owed to the
   government.



Responsible Entities
Ministry of Finance
-
Ministry of Trade and Industry
-
The Prime Minister

Date 6/30/2020

Responsible Entities
Ministry of Finance
-
Ministry of Trade and Industry
-
The Prime Minister

Date

 * Challenge(s)
 * |
 * Recommendation(s)
 * |
 * Status/Notes
   Rate Share Full Screen History

 * To date, neither the Prime Minister nor the Board of Directors of the Export
   Development Fund (EDF) has officially issued any decision regarding the
   mechanisms for implementing the proposed new system for supporting Egyptian
   exports.
 * One of the challenges that hinder exporters from fulfilling the documents
   required for receiving export subsidies in a timely manner is the requirement
   that they must provide an export certificate issued by the Customs Authority,
   which takes up to a year. FEI has already called for revisiting this
   requirement. 
    



Responsible Entities
Ministry of Finance
-
Ministry of Trade and Industry
-
The Prime Minister

Date 2/2/2020

 * Amend the rules so that the percentage of export subsidy is not less than
   40%, in line with the definition of Egyptian (domestic) products contained in
   Law No. 5 of 2015—products satisfying the proportion of domestic industrial
   components.  
 * Review and amend all sectoral programs that benefit from the export subsidy
   program (each sectoral program specifies the percentage of export subsidy it
   is entitled to); a number of these programs include many sectors with no
   requirement for a specific percentage of  domestic value added in exports to
   enjoy the export rebates, these include: leather, leather products, and
   footwear program; artifacts and handicrafts; spinning and weaving; home
   furnishings; ready-made garments; and garment accessories.
 * Revisit the sectors that are already benefiting from export support; target
   those sectors that can actually contribute to achieving a quantum leap in
   industrial exports; thus, support should be directed to specific goods that
   are exported to specific countries, rather than adopting an undifferentiated,
   one-size-fits-all approach.
 * Review and amend the percentages of domestic value addition included in other
   programs that provide export rebates for industries with domestic value added
   of less than 25%. These include programs covering the following industries:
   furniture, engineering industries, medical industries, pharmaceuticals and
   cosmetics, chemical industries, marble and granite, and insulating materials.
 * Carryout out a thorough performance evaluation of the Egyptian Exports
   Subsidy Program (EESP), with a focus on assessing its impact on the rate of
   growth of industrial exports since its launch in 2001. The evaluation should
   also provide an analysis of each of the industrial sectors, identify the
   winners and losers, as well as to measure the impact of the support provided
   on the profitability and competitiveness of exported products. The results of
   the evaluation should serve as the basis for designing a forward-looking
   comprehensive strategy to develop Egyptian exports.  
 * Carryout sectoral studies of the upstream industries relevant to each of the
   industrial sectors, including:

 1. Identifying production gaps and prioritizing the imports which the upstream
    industries require. 
 2. Examining the feasibility of substituting these inputs with locally produced
    inputs, taking into consideration local demand and competitiveness in global
    markets. 

 * Consider the following fundamental underpinnings when designing the export
   support program: 

 1. Improving the international competitiveness of Egyptian exports should be
    the priority; providing cash subsidies to exporters against the delivery of
    export invoices should be secondary. Price is not the only consideration
    that determines competitiveness, non-price factors, including product
    quality and the efficiency of the production process (the technical, human,
    and administrative components) are equally important.
 2. Replacing imports with domestic production is no less important than
    exporting, especially that it contributes to the same strategic objective of
    reducing the trade deficit and providing hard currency.
 3. Priority, in terms of land allocation and licensing, should be given to
    industries with high export potential or which are the least
    import-intensive. 
 4. Export support and import substitution programs should be linked to a range
    of non-monetary incentives, such as facilitated access to land allocation,
    extending utilities to land plots, the provision of utilities, labor
    training, customs, and tax incentives, and the promotion of modern
    production techniques. 
 5. Export support programs should give adequate attention to promoting
    industrial deepening and the effective targeting of support to reach the
    most deserving industries. 
 6. The export support program should not be overextended, it should be treated
    as a phased program designed to activate the system of export development
    and address the imbalances that the earlier programs suffered from. It will
    not necessarily lead to increasing exports as desired. Increasing exports
    require undertaking an integrated approach to addressing the shortcomings in
    the investment environment in a holistic manner, closing all the gaps in the
    industrial sectors by focusing on industrial deepening, reducing imports,
    identifying specific high value added products and targeting them to
    increase exports to targeted countries. In other words, increasing exports
    requires undertaking a methodological effort that reaches all corners of the
    relevant state bodies. FEI is concerned that continuing with the export
    support program in its current configuration will not yield the intended
    results—significantly increasing exports, and ultimately, the responsibility
    for the failure will fall squarely on the shoulders of the program.

 * The support provided to exports should be dynamically linked to the changes
   in the exchange rate. This is particularly important as the recent
   strengthening of the Egyptian pound against the US dollar, as well as the
   high inflation rates negatively affected the competitiveness of the domestic
   products.  
 * Streamline procedures, and ensure that funds are released to exporters in a
   timely manner; failure to do this will render the program unsuccessful. 



Responsible Entities
Ministry of Finance
-
Ministry of Trade and Industry
-
The Prime Minister

Date 2/2/2020

 * In July 2019, the Board of Directors of EDF announced the approval of a new
   LE 6 billion export rebate program for the fiscal year 2019-2020. This
   program entails allocating, 40% of the total budget, LE 2.4 billion, for cash
   payments to exporters, while another 30% of the program, LE 1.8 billion, will
   be deducted from liabilities that exporters owed to the Ministry of Finance.
   The remaining LE 1.8 billion, 30% of the program, will be used to boost the
   infrastructure and capacities of export operations.
 * The implementation mechanisms of the program center on determining the value
   of rebates at the sectoral level and allocating a budget for each sector
   separately. The allocation of each sector will be revisited every 6 months,
   and reallocation of funds will be decided upon as needed. In this regard, the
   eligible sectors include the food industries; spinning and weaving,
   ready-made garments, home furnishings, and engineering industries; chemical
   and fertilizers; building materials, refractories and metallurgical
   industries; building and construction materials; agricultural crop; printing
   and packaging; medical industries; as well as leather, furniture; and
   artifacts and handicrafts.
 * Exports not benefitting from the export rebate program will continue to
   benefit from the Shipping Africa Program, which will receive an allocation of
   LE 40 million. Additionally, under the continued the Air Cargo Program, LE
   100 million will be allocated to EgyptAir to support the shipping of Egyptian
   exports. LE 100 million will also be allocated to the EDA in order to
   continue holding pooled fairs through a transitional phase until the end of
   2019.
 * The new program focuses on industrial deepening, aiming at increasing local
   manufacturing by a minimum of 40%, as well as encouraging exports of small
   and medium-sized enterprises by providing additional export rebates, over and
   above the already established rates: an additional 1% export rebate for
   medium-sized enterprise exports and an additional 2% export rebate for small
   enterprise exports respectively. 
 * The program also provides additional incentives—export rebates—to companies
   to encourage export expansion. It grants large and medium-sized enterprises
   an additional 10-15% rebate for exports that show 20-30%+ growth, and small
   enterprises will receive an additional 20-30% rebate for exports that show
   20-30%+ growth. Exporters located in free zones will receive 50% less export
   support than non-free zone exporters.
    



Responsible Entities
Ministry of Finance
-
Ministry of Trade and Industry
-
The Prime Minister

Date 2/2/2020

 * Challenge(s)
 * |
 * Recommendation(s)
 * |
 * Status/Notes
   Rate Share Full Screen History

 * The Export Councils, which are advisory bodies that are neither elected nor
   part of the executive branch, are still operating on the basis of the
   ministerial decree that was issued to regulate them; the decree is valid
   through the end of 2019. 

The Following are some key issues that need addressing:

 * There is a fee for one of the required export rebate application forms; this
   is a flaw in the regulations.
 * The settlement of overdue export rebate arrears owed to a number of companies
   for the period ending July 1, 2019, remains ambiguous. It was announced that
   the Ministry of Finance will offset these arrears with outstanding tax
   liabilities. It is not clear, however, how this issue will be resolved for
   companies with no outstanding tax liabilities for the prior years. 
 * Does the export support program allocate a specific fixed amount of funds for
   each sector? In the case that the volume of exports in one particular sector
   necessitates the disbursement of funds that exceed the sector’s allocation,
   how will this situation be resolved?  
 * Should Export Councils, which are advisory bodies that are neither elected
   nor part of the executive branch have the prerogative to decide who is
   entitled to receive export support? 
 * The status of free-zone companies is ambiguous.
 * How will export rebates be treated by the Tax Authority, and what mechanisms
   will be used to disburse the rebates?



Responsible Entities
Ministry of Finance
-
Ministry of Trade and Industry
-
The Prime Minister

Date 2/2/2020

 * Application processing fees should only be imposed by law.
 * Respond to the memo submitted by FEI and FECOC concerning the issue of export
   rebate allocations, and the extent to which they are commensurate with the
   actual volume of exports.  



Responsible Entities
Ministry of Finance
-
Ministry of Trade and Industry
-
The Prime Minister

Date 2/2/2020

The government’s response to the concerns raised by the Export Councils
highlighted the following:

 * Efforts will be made to create a legal framework for Export Councils by early
   2020.
 * Export support is not to be limited to member companies in the Export
   Councils. However, a number of Export Councils require membership to receive
   support, particularly with respect to health and safety approvals, and
   fulfillment of other relevant requirements.  
 * The fee imposed on one of the required export rebate application forms is not
   prescribed by law; rather, it is imposed via an administrative decision made
   by the Export Councils. This issue will be addressed in the legal framework
   that will be developed.  
 * Settling export rebate arrears will be subject to the new mechanism, which
   will be applied beginning July 1, 2019. Arrears for time periods before July
   1, 2019, will be subject to the old mechanism. This will increase the burden
   on the EDF, especially that the rebate mechanism for these arrears has not
   been decided upon yet. EDF board discussed the settlement of arrears owed to
   companies for the period ending December 31, 2017. 
 * Large businesses may receive full support with regard to shipping (this does
   not address cases where the amount due to the business exceeds the 30%
   prescribed for technical support).
 * Five export councils are contributing LE 6 million towards automating EDF
   operations. 
 * To settle overdue export rebates, the government will randomly select a
   number of companies with outstanding tax liabilities and offset it with the
   overdue export rebates; the government will explore mechanisms for settling
   overdue export rebates for companies with no outstanding tax liabilities.
   (FEI and FECOC responded to this proposal by highlighting that this will
   ultimately boil down to rewarding companies that are delinquent in meeting
   their tax obligations, and penalizing compliant companies that fulfill their
   obligations on time.)
 * Specific amounts of funds are being separately allocated to each sector for
   export rebate purposes. These allocations will be reviewed periodically to
   determine their adequacy. (FEI and FECOC notes that this adds more ambiguity
   to the export support program implementation mechanisms.)



Responsible Entities
Ministry of Finance
-
Ministry of Trade and Industry
-
The Prime Minister

Date 2/2/2020



PROMOTING INDUSTRIAL GROWTH AND ENCOURAGING FOREIGN DIRECT INVESTMENT IN EGYPT

https://fei.cipe-arabia.org:443/Problems/ViewProblem?id=17

Issue-Specific Reforms > Export Subsidy Program



--------------------------------------------------------------------------------


EXPORT SUBSIDY PROGRAM


CHALLENGE(S)

 * The continued support and incentives offered to industries result in
   financial obligations that exceed the current budget of the ESF; this
   practice affects its capacity to satisfy its obligations towards factories
   and business owners.




RECOMMENDATION(S)

 * Set up a mechanism, whereby ESF’s debt owed to a business can be transformed
   into credit in favor of the business; the credit can then be used by the
   business to pay any dues or meet other delinquent obligations owed to the
   government.




STATUS/NOTES / UPDATES



--------------------------------------------------------------------------------


CHALLENGE(S)

 * To date, neither the Prime Minister nor the Board of Directors of the Export
   Development Fund (EDF) has officially issued any decision regarding the
   mechanisms for implementing the proposed new system for supporting Egyptian
   exports.
 * One of the challenges that hinder exporters from fulfilling the documents
   required for receiving export subsidies in a timely manner is the requirement
   that they must provide an export certificate issued by the Customs Authority,
   which takes up to a year. FEI has already called for revisiting this
   requirement. 
    




RECOMMENDATION(S)

 * Amend the rules so that the percentage of export subsidy is not less than
   40%, in line with the definition of Egyptian (domestic) products contained in
   Law No. 5 of 2015—products satisfying the proportion of domestic industrial
   components.  
 * Review and amend all sectoral programs that benefit from the export subsidy
   program (each sectoral program specifies the percentage of export subsidy it
   is entitled to); a number of these programs include many sectors with no
   requirement for a specific percentage of  domestic value added in exports to
   enjoy the export rebates, these include: leather, leather products, and
   footwear program; artifacts and handicrafts; spinning and weaving; home
   furnishings; ready-made garments; and garment accessories.
 * Revisit the sectors that are already benefiting from export support; target
   those sectors that can actually contribute to achieving a quantum leap in
   industrial exports; thus, support should be directed to specific goods that
   are exported to specific countries, rather than adopting an undifferentiated,
   one-size-fits-all approach.
 * Review and amend the percentages of domestic value addition included in other
   programs that provide export rebates for industries with domestic value added
   of less than 25%. These include programs covering the following industries:
   furniture, engineering industries, medical industries, pharmaceuticals and
   cosmetics, chemical industries, marble and granite, and insulating materials.
 * Carryout out a thorough performance evaluation of the Egyptian Exports
   Subsidy Program (EESP), with a focus on assessing its impact on the rate of
   growth of industrial exports since its launch in 2001. The evaluation should
   also provide an analysis of each of the industrial sectors, identify the
   winners and losers, as well as to measure the impact of the support provided
   on the profitability and competitiveness of exported products. The results of
   the evaluation should serve as the basis for designing a forward-looking
   comprehensive strategy to develop Egyptian exports.  
 * Carryout sectoral studies of the upstream industries relevant to each of the
   industrial sectors, including:

 1. Identifying production gaps and prioritizing the imports which the upstream
    industries require. 
 2. Examining the feasibility of substituting these inputs with locally produced
    inputs, taking into consideration local demand and competitiveness in global
    markets. 

 * Consider the following fundamental underpinnings when designing the export
   support program: 

 1. Improving the international competitiveness of Egyptian exports should be
    the priority; providing cash subsidies to exporters against the delivery of
    export invoices should be secondary. Price is not the only consideration
    that determines competitiveness, non-price factors, including product
    quality and the efficiency of the production process (the technical, human,
    and administrative components) are equally important.
 2. Replacing imports with domestic production is no less important than
    exporting, especially that it contributes to the same strategic objective of
    reducing the trade deficit and providing hard currency.
 3. Priority, in terms of land allocation and licensing, should be given to
    industries with high export potential or which are the least
    import-intensive. 
 4. Export support and import substitution programs should be linked to a range
    of non-monetary incentives, such as facilitated access to land allocation,
    extending utilities to land plots, the provision of utilities, labor
    training, customs, and tax incentives, and the promotion of modern
    production techniques. 
 5. Export support programs should give adequate attention to promoting
    industrial deepening and the effective targeting of support to reach the
    most deserving industries. 
 6. The export support program should not be overextended, it should be treated
    as a phased program designed to activate the system of export development
    and address the imbalances that the earlier programs suffered from. It will
    not necessarily lead to increasing exports as desired. Increasing exports
    require undertaking an integrated approach to addressing the shortcomings in
    the investment environment in a holistic manner, closing all the gaps in the
    industrial sectors by focusing on industrial deepening, reducing imports,
    identifying specific high value added products and targeting them to
    increase exports to targeted countries. In other words, increasing exports
    requires undertaking a methodological effort that reaches all corners of the
    relevant state bodies. FEI is concerned that continuing with the export
    support program in its current configuration will not yield the intended
    results—significantly increasing exports, and ultimately, the responsibility
    for the failure will fall squarely on the shoulders of the program.

 * The support provided to exports should be dynamically linked to the changes
   in the exchange rate. This is particularly important as the recent
   strengthening of the Egyptian pound against the US dollar, as well as the
   high inflation rates negatively affected the competitiveness of the domestic
   products.  
 * Streamline procedures, and ensure that funds are released to exporters in a
   timely manner; failure to do this will render the program unsuccessful. 




STATUS/NOTES / UPDATES

 * In July 2019, the Board of Directors of EDF announced the approval of a new
   LE 6 billion export rebate program for the fiscal year 2019-2020. This
   program entails allocating, 40% of the total budget, LE 2.4 billion, for cash
   payments to exporters, while another 30% of the program, LE 1.8 billion, will
   be deducted from liabilities that exporters owed to the Ministry of Finance.
   The remaining LE 1.8 billion, 30% of the program, will be used to boost the
   infrastructure and capacities of export operations.
 * The implementation mechanisms of the program center on determining the value
   of rebates at the sectoral level and allocating a budget for each sector
   separately. The allocation of each sector will be revisited every 6 months,
   and reallocation of funds will be decided upon as needed. In this regard, the
   eligible sectors include the food industries; spinning and weaving,
   ready-made garments, home furnishings, and engineering industries; chemical
   and fertilizers; building materials, refractories and metallurgical
   industries; building and construction materials; agricultural crop; printing
   and packaging; medical industries; as well as leather, furniture; and
   artifacts and handicrafts.
 * Exports not benefitting from the export rebate program will continue to
   benefit from the Shipping Africa Program, which will receive an allocation of
   LE 40 million. Additionally, under the continued the Air Cargo Program, LE
   100 million will be allocated to EgyptAir to support the shipping of Egyptian
   exports. LE 100 million will also be allocated to the EDA in order to
   continue holding pooled fairs through a transitional phase until the end of
   2019.
 * The new program focuses on industrial deepening, aiming at increasing local
   manufacturing by a minimum of 40%, as well as encouraging exports of small
   and medium-sized enterprises by providing additional export rebates, over and
   above the already established rates: an additional 1% export rebate for
   medium-sized enterprise exports and an additional 2% export rebate for small
   enterprise exports respectively. 
 * The program also provides additional incentives—export rebates—to companies
   to encourage export expansion. It grants large and medium-sized enterprises
   an additional 10-15% rebate for exports that show 20-30%+ growth, and small
   enterprises will receive an additional 20-30% rebate for exports that show
   20-30%+ growth. Exporters located in free zones will receive 50% less export
   support than non-free zone exporters.
    



--------------------------------------------------------------------------------


CHALLENGE(S)

 * The Export Councils, which are advisory bodies that are neither elected nor
   part of the executive branch, are still operating on the basis of the
   ministerial decree that was issued to regulate them; the decree is valid
   through the end of 2019. 

The Following are some key issues that need addressing:

 * There is a fee for one of the required export rebate application forms; this
   is a flaw in the regulations.
 * The settlement of overdue export rebate arrears owed to a number of companies
   for the period ending July 1, 2019, remains ambiguous. It was announced that
   the Ministry of Finance will offset these arrears with outstanding tax
   liabilities. It is not clear, however, how this issue will be resolved for
   companies with no outstanding tax liabilities for the prior years. 
 * Does the export support program allocate a specific fixed amount of funds for
   each sector? In the case that the volume of exports in one particular sector
   necessitates the disbursement of funds that exceed the sector’s allocation,
   how will this situation be resolved?  
 * Should Export Councils, which are advisory bodies that are neither elected
   nor part of the executive branch have the prerogative to decide who is
   entitled to receive export support? 
 * The status of free-zone companies is ambiguous.
 * How will export rebates be treated by the Tax Authority, and what mechanisms
   will be used to disburse the rebates?




RECOMMENDATION(S)

 * Application processing fees should only be imposed by law.
 * Respond to the memo submitted by FEI and FECOC concerning the issue of export
   rebate allocations, and the extent to which they are commensurate with the
   actual volume of exports.  




STATUS/NOTES / UPDATES

The government’s response to the concerns raised by the Export Councils
highlighted the following:

 * Efforts will be made to create a legal framework for Export Councils by early
   2020.
 * Export support is not to be limited to member companies in the Export
   Councils. However, a number of Export Councils require membership to receive
   support, particularly with respect to health and safety approvals, and
   fulfillment of other relevant requirements.  
 * The fee imposed on one of the required export rebate application forms is not
   prescribed by law; rather, it is imposed via an administrative decision made
   by the Export Councils. This issue will be addressed in the legal framework
   that will be developed.  
 * Settling export rebate arrears will be subject to the new mechanism, which
   will be applied beginning July 1, 2019. Arrears for time periods before July
   1, 2019, will be subject to the old mechanism. This will increase the burden
   on the EDF, especially that the rebate mechanism for these arrears has not
   been decided upon yet. EDF board discussed the settlement of arrears owed to
   companies for the period ending December 31, 2017. 
 * Large businesses may receive full support with regard to shipping (this does
   not address cases where the amount due to the business exceeds the 30%
   prescribed for technical support).
 * Five export councils are contributing LE 6 million towards automating EDF
   operations. 
 * To settle overdue export rebates, the government will randomly select a
   number of companies with outstanding tax liabilities and offset it with the
   overdue export rebates; the government will explore mechanisms for settling
   overdue export rebates for companies with no outstanding tax liabilities.
   (FEI and FECOC responded to this proposal by highlighting that this will
   ultimately boil down to rewarding companies that are delinquent in meeting
   their tax obligations, and penalizing compliant companies that fulfill their
   obligations on time.)
 * Specific amounts of funds are being separately allocated to each sector for
   export rebate purposes. These allocations will be reviewed periodically to
   determine their adequacy. (FEI and FECOC notes that this adds more ambiguity
   to the export support program implementation mechanisms.)



--------------------------------------------------------------------------------



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