Exporters seek to reverse govt plans to condition subsidies on conversion of revenues into Egyptian pounds

Export councils are seeking a meeting with Prime Minister Mostafa Madbuly within the next two weeks to push against the implementation of a new export subsidy system that the government has in the pipeline, according to the head of one export council, who spoke to Mada Masr on condition of anonymity.

The new plan would see a decrease in the rate of subsidies the government pays to exporters and require traders to convert a proportion of their foreign currency revenues into Egyptian pounds.

The government has been providing direct financial support to exporters for decades as part of its export promotion strategy, with exporters obliged to keep their revenues inside Egypt in order to claim the subsidy.

Under the new system, the average export subsidy rate would drop from the current 10 percent to three percent, according to the council head and another council member working in textiles exports, who told Mada Masr they had seen a leaked draft of the new system, which Investment Minister Hassan al-Khatib confirmed the veracity of to exporters at a meeting earlier in November.

It would also apply the subsidy cut retroactively from March this year, remaining in effect until June 2025.

“The new system means exporters will receive subsidy payments for deals made since March at the new rates, even though these deals were priced on the basis of the higher export subsidy,” the council head said.

The new system would further require exporters to convert 50 percent of their foreign currency revenues into local currency in order to qualify for the subsidy.

The council head said that the 50 percent should not be applied uniformly across all sectors, as some sectors have a much greater need for foreign currency resources to fund production. “For instance,” the source said, “agricultural exports don’t rely heavily on foreign currency, making it easier for them to give it up, unlike sectors like engineering, which require significant foreign currency to purchase production inputs.”

Over recent years, the national foreign currency shortage has disrupted access to funds through the banking system, forcing some sectors to halt production. These shortages previously led to a significant decline in exports across various industries, as sources previously told Mada Masr.

The subsidy reductions will likely lead many exporters to abandon the program altogether, keeping their foreign currency instead of claiming the government subsidy, the council head said.

The source from the textile export council noted that exporters who convert foreign currency to the Egyptian pound could face additional costs if they need to repurchase foreign currency at a later point, given the discrepancy in bank buying and selling rates.

The councils’ plan to propose either canceling the new system or at least adjusting it to increase subsidy rates in exchange for foreign currency conversion, the same source said.

Both sources pointed out that the details of the new program fail to clarify how subsidy rates would be calculated for the period between July 2023 and March 2024.

The export council head stressed that if amending the new system proves unfeasible, it is crucial to coordinate with the prime minister to ensure that the next subsidy framework — set to take effect in mid-2025 — is developed in consultation with the export councils.

On October 9, Investment Minister Hassan al-Khatib announced the key features of the new export subsidy program, describing it as one that would "ensure full transparency and clarity by reflecting the allocated budget and providing periodic evaluations of the sectors requiring support." He also stated that the new program would be committed to disbursing exporters' dues since March 1, 2024, within a maximum of 90 days from the submission of required documents.

Khatib made no mention in the early October announcement of the fact that subsidies under the new system would drop by as much as 70 percent compared to the previous system.

Ahead of their November meeting with Khatib, the export council for food industries sent him a letter, which Mada Masr reviewed, proposing that the new system be applied only to shipments made after November 1. The council also suggested maintaining the previous subsidy rates until that date and phasing in the subsidy reductions over three years instead of implementing them all at once.

However, according to the sources, one of whom attended the meeting, Khatib rejected all proposals from the investors, citing the country's economic constraints without providing further details.

The export council head noted that the councils had previously proposed that the Investment Ministry reduce the subsidy rate to an average of eight percent, down from the current 10 percent, in exchange for ensuring payment within three months, instead of the current system, which lacks any time limits for disbursement.

The source from the textile export council added that the new program caught them both off guard, especially given that export subsidy programs have traditionally been designed in consultation with exporters.

Though government spending on export subsidies has increased over recent years, delays in disbursement have undermined their effectiveness, eroding their value for exporters, according to several sources from export councils who spoke to Mada Masr previously.

According to the two export sources, the previous export subsidy system expired in July 2023 without a replacement, leading exporters to assume the old system remained in effect.

In a meeting with the prime minister in April, export council heads called for a clearer, more consistent subsidy program that would remain in place for an extended period. At the time, Madbuly stated, “We are here today to listen to your views and proposals, to understand what you expect from us as a government, and to determine realistic, measurable steps toward these goals with a clear mechanism.”