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Abu Dhabi, UAESunday 16 December 2018

Cairo's printed package prices law is ill-conceived

Yet another example of needless state interference that will do little to help the consumers

People walk at the Khan El Khalili market in Cairo, Egypt. A new law means all products must have an indelible price stamped on them. Mohamed El-Shahed / AFP
People walk at the Khan El Khalili market in Cairo, Egypt. A new law means all products must have an indelible price stamped on them. Mohamed El-Shahed / AFP

Last week, the Egyptian government imposed a regulation forcing producers and packagers to stamp the retail price on all their products.

This is yet another example of needless state interference that will do little to help the consumers the regulation is supposed to protect.

“All parties that produce or import (packaged locally) or manufacture or package or purchase food products must print the retail price clearly in Arabic on every package in a manner that cannot be erased,” said a law published in the official gazette on October 10.

Companies have until the end of the year to comply. In the meantime, retail shops must post prices of all their food products in a prominent place. Anyone violating the law risks being jailed for up to five years.

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The law is designed to curb inflation by keeping food prices down. “All countries try to regulate their markets to protect [citizens] from the greed of merchants,” a supply ministry spokesman told Reuters last week.

The problem with this is that it is not greedy merchants behind Egypt’s high inflation, but rather the rapid growth of the money supply, caused in part by successive governments printing money to plug the government’s big budget deficit since the 2011 uprising. Too many pounds have been chasing Egypt’s limited amount of goods and services, pushing prices up.

The law creates a whole series of complications for manufacturers and merchants. Forcing companies to put prices on their products merely adds another layer of administrative hassle while reducing their ability to respond quickly to changing market forces.

Presumably, merchants will have to charge the same price for a product no matter where it is sold. That means items sold in wealthier areas will bear the same price as those sold in poor neighbourhoods, with no allowance for a merchant who has to pay a high rent for his shop.

Shortages will appear if the underlying demand for a product suddenly increases and manufacturers are not allowed to adjust their prices. This would encourage corruption by giving the merchant a monetary incentive to sell at prices other than those marked.

The government will have to send out teams of inspectors to make sure merchants are adhering to the rules, creating another level of bureaucracy.

Egypt should be working overtime to attract longer-term investment. Egypt’s efforts to cut back on subsidies could help the economy soar, as well as its poor. Plus, placing labels on products now available in Egypt’s increasingly sophisticated economy is a huge burden on manufacturers.

On top of this, it sends a signal to investors, both local and foreign, that the constant and ill-thought-out inclination of the government to interfere in the market makes investing in Egypt dangerous.

In today’s competitive world, manufacturers should be allowed to be flexible, to be able to change on a dime. That is in the interest of consumers, as well as producers.

What is sad is that the annual inflation rate, which was 31.6 per cent in the year to September, will almost certainly drop dramatically in the coming few months for reasons totally unrelated to last week’s law.

Egypt’s inflation had been running at around 13 per cent before the government took a series of austerity measures late last year, when it devalued the pound by half, raised fuel prices and increased the country’s value-added tax by 3 percentage points. Prices made a one-time leap immediately after that, and this has continued to show up in the annual inflation figures. The figure should soon fall back to its rate of around 13 per cent – or even less.

There is a danger that manufacturers will actually prolong Egypt’s current high inflation as they place prices on their products. They will be tempted to price in their expectations for inflation.

Many will look at the annual headline inflation, which is now running at more than 31 per cent, and not at the underlying and much lower month-on-month inflation.

What is also sad is that Egypt, with the help of the reform programme that it adopted with the help of the IMF last year, has been getting its money supply growth under control.

M2 money supply has been 20 per cent or more for much of the past six years. But with the reduction in the budget deficit this promises to start coming down.

Patrick Werr has worked as a financial writer in Egypt for 27 years