Disputed ‘Industrial Product Preference’ law still inactive

CAIRO – 18 August 2017: Although law no. 5 for the year 2015, namely the regulation of ‘Egyptian Industrial Product Preference’ in governmental contracts, was promulgated 2 years ago, yet up till now it has been inactive for no apparent reason for the official reluctance to activate it, even though it was officially ratified when its executive bylaws were issued.

The law stipulates the preference of Egyptian local products in governmental contracts, whereby Egyptian industrial products which comply with standard specifications are to be no less than 40 percent of the estimated total value of any given project. It is possible, however, for the Prime Minister to decree exemptions from the law following recommendations from the Minister of Trade and Industry, the Minister of Finance and the Minister of Planning.

The regulation is operable on purchase contracts, project contracts signed by the state’s administrative bodies, such as ministries, authorities, apparatuses with independent budgets, internal administrative units, and public service and economic institutions. It is also operable on project contracts of companies that are exclusively state-owned, companies owned by public figures, companies of the public sector, companies of the business public sector, and companies, in which the state or any of the aforementioned companies own a majority holding.

During the past year, the Ministry of Trade and Industry organized a number of introductory seminars as a step to introduce the regulation to various governmental bodies and inform them with its details by printing and distributing free copies of the law. These efforts, however, could not succeed in pushing for a full implementation of the law.

The Parliament’s Industrial Committee is holding a hearing in a few days to discuss the refusal of some governmental institutions to abide by the regulation. Ahmad Samir, president of the Industrial Committee, said that the local product endorsing regulation is the most important in the coming stage because it will transform Egypt from horizontal industrial expansion to vertical industrial expansion. Expanding each industry on its own alleviates pressures off the foreign currency, fixes prices and employs various sectors in the country; researching mechanisms which would oversee the execution of the law is also taking place.

Noha Sheta Assistant of the Minister of Trade and Industry and expert on small and medium-sized enterprises and on organizing introductory seminars about the law, said that the unfortunate reason why the regulation has not been activated despite the fact that it was passed 2 years ago is the lack of awareness and proper publicity of the regulation, the matter which deepened official and governmental dismissal of it.

She added that the ministry took two paths in handling the issue, one of which is giving introductory sessions to all governmental bodies about the law, and the other is sending letters to about 700 governmental institutions all over Egypt with free copies of the law attached.

In addition, Sheta said that the ministry observed a number of ministries which refuse to implement the law up till now and which prefer imported products to local ones in their contracts, and these institutions are the Ministry of Electricity, the Ministry of Education and the Ministry of Petroleum, in addition to several authorities subsidiary to some other ministries.

Sami Badr, president of the technical secretariat of the Egyptian Industrial Product Preference Committee which is located inside the Industrial Development Authority, says that law no. 5 for the year 2015 includes repressive penalties that makes it necessary and critical for the promotion of national industries, especially that the rules of the law are operable on companies exclusively owned by the state, companies of the public sector and of the public industrial sector, whereby they are obliged in their contracts to keep the percentage of Egyptian industrial products which comply with standard specifications above 40 percent of the estimated total value of the project.

Badr further points out that the fines specified by the law for incompliant companies range between LE 5,000 and LE 100,000 ($281 and $5,622) adding that the committee deals with many other areas stipulated by the law and by the decree issued by the Minister of Trade and Industry for its formation.

Such areas include:

- creating a database for the contracts which should be subjected to the law and for the amount of money spent out of the government's budget on buying imported industrial products and for what reasons

- receiving complaints

- monitoring the commitment of various institutions to the implementation of the law and to the regulations of equality; non-discrimination and transparency that the law implies
- submitting quarter-annual reports to the Cabinet of Ministers and the House of Representatives of the results achieved by the secretariat of the level of commitment to the procedures, and of evaluations of the effects of the law’s implementation on Egyptian industry

- studying contracts worth more than LE 10 million ($562,200) before putting them forth to the public.

In addition to all the above, the law gave special importance to small and medium projects, through exempting them of half the initial and final insurance deposits when offering government tenders. This reflects the importance of that law in promoting local industry in general, and small and medium projects in particular.

He also indicated that the industrial sector in particular will greatly advance when this law is applied. For example, it will promote local production, and give local products a competitive advantage and better prices. It will also help limit importation, achieve equilibrium in the balance of payments, provide many job opportunities and improve the quality of local products so that they are fit for exportation.

Head of Federation of Egyptian Industries Engineer Mohammed el-Swidi said that the Federation had declared its support of the law ever since it was only an idea and until it was issued in its final form. He stated that applying such law will promote Egyptian products’ added value, and greatly develop the industrial sector and other sectors negatively impacted by the events the country witnessed throughout the past 6 years.

In addition, he added that he would work on developing the small and medium industries sector, integrate informal economy into formal economy, improve the quality of Egyptian products, and promote investment. He emphasized that the Federation gave 100 certificates to 100 companies working in the industrial sector so far, in compliance with the law, which requires giving certificates to agencies committed to its application.

As for government agencies that have not applied the law so far, Swidi indicated that this will do great damage to the targeted development plan of the industrial sector. He added that he believes the Ministry of Trade and Industry will deal with the situation so that the law is applied, especially that the law includes a number of penalties that should deter those who do not comply with it.

As for these penalties, the law states that a fine no less than LE 5,000 and no more than LE 100,000 should be paid by anybody who does not submit the Egyptian Industrial Product Preference Committee the required data, papers or documents.

In addition, a similar fine is imposed on those who breach the commitment to advertise on the Procurement Portal, and a third no less than LE 50,000 and no more than 10 percent of the contract’s total price shall be paid by whoever intentionally provides false data, certificates or documents.

However, if such violation happened due to delinquency or negligence, a fine no less than LE 5,000 and no more than LE 100,000 is imposed.