Egypt's new rules requiring importers to use letters of credit (L/Cs) are stifling access to essential imports for the country's own agricultural, industrial and health sectors according to a report in the Mada Masra independent Egyptian online newspaper.

It focuses particularly on the plight of Egyptian crop seed importers that have been unable to obtain seeds for almost three months, putting many livelihoods and supply chains in danger as nearly 98 per cent of the seeds used for domestic agricultural production are imported.

L/C requirement

In February, the Central Bank of Egypt (CBE) issued a notice to banks ordering them to arrange only L/C transactions for importers of certain goods.

Until that notice was issued, importers could buy on cash-against-documents terms that do not require traders to tie up their bank lines of credit (DC World News, 23 February 2022).

Scarcity of commodities

Economists who spoke to Mada Masr said that the scarcity of commodities, like planting seeds, stemmed from a hastily deployed strategy, through which the state sought to bolster its depleted reserves of foreign currency.

Before importers were required to open L/Cs for their purchases, they were able to negotiate terms with exporters to pay a small percentage of the full transaction in advance, and pay the balance in instalments. Small- and medium-sized enterprises have been exposed to the greatest impact as a result of the L/C ruling the report says.

CBE's vague wording

Vague wording in the central bank's L/C ruling may be responsible for the plight of the crop seed importers and the domestic growers who buy the imported seeds.

The CBE ruling specifies 'seeds', probably with the intention of curbing imports of edible seeds such as sunflower or chia. But in practice, the L/C ruling has prevented the import of any seeds, including those needed to sustain domestic agricultural production of staple crops the report concludes.

The Mada Masr report, Central bank import regulations stifle access to key goods in trade-off for dollar solvency, can be found here.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.