President Abdel Fattah Al-Sisi’s Wednesday announcement on the application of a barter system with Russia will give Egyptian products more competitiveness, according to Ahmed Shiha, member of the Russian-Egyptian Business Council.
Shiha added that Al-Sisi’s comments, made during the Hurghada Airport inauguration, would also raise the number of Russian tourists and increase the trade volume between the two countries.
“The barter system was applied during the time of President Gamal Abdel Nasser, which allows the purchase of Russian products and paying for it with Egyptian products,” Shiha said. “Its value is determined by the dollar, buying a good in exchange for another good.”
He further stressed that the current circumstances, characterised by the European commercial sanctions and decline of the value of the Russian currency, strongly support the implementation of this system.
The media quoted Prime Minister Ibrahim Mehleb, during Wednesday’s Hurghada Airport inauguration, as saying the government is studying the advantages of the sharp decline in the value of the Russian rouble after the oil price decline. They will examine the possibility of applying the barter trade system between Egypt and Russia.
But government sources ruled out the “exchange” barter system (goods-for-goods exchange) due to it being in conflict with World Trade Organization (WTO) regulations. They added, however, that the barter could be done through the reception of Russian tourism in exchange for Russian imports with the same value and through compensation and calculating the difference.
During his press statements on Wednesday, President Al-Sisi commissioned the cabinet to begin studying the application of the barter system with Russia. He also commissioned Minister of Tourism Hisham Zaazou to secure the flow of Russian tourists to Egypt, especially with the decline in the value of the rouble, to ensure their numbers do not decrease.
Mehleb said that he would urge alternatives to be found for the shortfall in the number of Russian inbound tourists to Egypt. The numbers have been affected by the decline in the rouble against the value of other currencies by up to 50%, causing a decrease in inbound tourism by approximately 26% during the current week.
Mehleb said: “The alternatives that will be discussed will not include lowering prices, despite the fact that the Russian market comes at the forefront of tourist markets in Egypt, but will include firstly the barter goods system, in addition to discussing a number of other promotional alternatives in the Russian and the other markets as well.”
Shiha, who heads the importers division in the Federation of Egyptian Chambers of Commerce (FEDCOC), added the implementation of the barter system with Russia will give a competitive advantage to Egyptian products that are less competitive in international markets. He said, however, that the barter system will require the Russians to buy the product in order to pay off its dues. He added that the goods will include salt, raw materials, dairy products, and could include electrical products.
“Trade volume between the two countries is between $2-3bn currently and we hope to have it reach $10bn annually,” Shiha said. He links the growth in trade volume with the success of the Egyptian administration in signing commercial contracts with Russia that include the import of oil, military hardware, and grains.
Shiha said the Egyptian-Russian Business Council will organise several events in the near future. This will include a conference on grains to be held in Sharm El-Sheikh in October 2015, which will see businessmen from Russia, Egypt, and the Middle East, attend. He added that the Egyptian embassy in Moscow will host a seminar in January that will bring together Russian businessmen.
He called for the intensification of exchange visits between delegations from Cairo and Moscow, both at the political and business levels in the upcoming phase. He said that the activities are confined to tourism and export of Russians grains to Egypt.
According to the Chairman of the General Authority for Investment and Free Zones (GAFI) Hassan Fahmy, the volume of Russian investments in Egypt is very low. The inflow of investments comes from only 399 companies, the majority of which are operating in the tourism sector with capital not exceeding $68m.
Fahmy revealed a request from Russia for a Russian investment zone in Egypt, explaining that the issue is currently being examined by the government. It will take advantage of the restrictions and constraints currently experienced by Russia due to European sanctions.
Fahmy said: “We are currently working with the government to get rid of all administrative obstacles and provide facilitations to businessmen in order to make space for Russia to enter the market for medicines and Egyptian consumer goods.”
Arkady Dvorkovich, Russian Deputy Prime Minister, stated during a press conference that the rouble’s decline will not affect Russian tourism in Egypt. In fact, the number is expected to reach 3 million tourists by the end of this year.
He added that Russian tourists look for cheap markets like Egypt, especially those offering the best services and transportation with competitive prices. Dvorkovich stated that the rouble will soon recover and increase its purchasing power.