From Beltone Egypt News, May 6th 2008:
The People’s Assembly approved yesterday additional expenditures for FY2007/2008 to be financed by the implementation of a number of measures announced by the government at a press conference yesterday, reported local newspapers. The measures, aiming to finance the 30% increase in bonus for civil employees, an increase in pensions and additional subsidies on food and energy products, include: i) an increase in the prices of 90, 92 and 95-octane gasoline, diesel (gas oil) and kerosene by 35%, 32%, 57%, 47% and 47% to E£1.75, E£1.85, E£2.75, E£1.1 and E£1.1 per litre, respectively, ii) an increase in sales tax on local and imported cigarettes ranging between 10% and 33%, iii) an increase in the price of natural gas for energy-intensive industries, from E£0.36/cubic metre to E£0.57/cubic metre, equivalent, approximately, to a rise from US$1.8/mBTU to US$2.8/mBTU, iv) imposing a development tax of E£35/tonne on clay from quarries, v) progressively increasing registration fees on vehicles, vi) removal of tax exemption for private schools and universities, vii) removal of the free zone status from energy-intensive companies operating in free zones areas, and viii) removal of tax exemption on Treasury bills. According to local newspapers, the measures are expected to generate E£14.4 billion annually for the government.
Comment: While we believe that the restructuring of subsidies announced by the government yesterday will have a positive impact fiscally, in terms of maintaining the budget deficit at current levels despite the increase in expenditures, we expect the rise in general costs following the announcement of these measures will result in a spike in inflation in the short term, until the effect of these cost-push shocks runs its course. We expect the rise in inflation will strongly impact the purchasing power of the low and low-middle income groups, while the higher income population’s purchasing power could be less affected. [Emphasis added]
According to Al Ahram newspaper, annual passenger car registration fees have increased, across the board, as follows:
• For engine capacities less than 1.0 litres, fees will be E£116, up from E£16
• For engine capacities from 1.0 to 1.3 litres, fees will be E£143, up from E£23
• For engine capacities from 1.3 to 1.6 litres, fees will be E£175, up from E£25
• For engine capacities from 1.6 to 2.0 litres, fees will be E£1,000, with a minimum of E£200, up from E£120
• For engine capacities above 2.0 litres, fees will be 2% of the vehicle’s total value, decreasing by 10% per annum, with a minimum of E£1,000, decreasing by 5% per annum to a minimum of E£200 up from E£120, previously
Comment: Although the increases are high in percentage terms, we believe the new fee structure is not significant in absolute terms for capacities less than 1.6 litres, which represent the bulk of passenger cars in Egypt. For capacities of 1.6 liters and above, the increases can be seen as more significant. Having said that, we do not see a direct impact on new car sales as a result of both the increases in registration fees and the increases in fuel prices, as the traditional buying decision in Egypt is based on the fact that other appropriate transportation means are not available. [Emphasis added]
Comment: While we believe that the restructuring of subsidies announced by the government yesterday will have a positive impact fiscally, in terms of maintaining the budget deficit at current levels despite the increase in expenditures, we expect the rise in general costs following the announcement of these measures will result in a spike in inflation in the short term, until the effect of these cost-push shocks runs its course. We expect the rise in inflation will strongly impact the purchasing power of the low and low-middle income groups, while the higher income population’s purchasing power could be less affected. [Emphasis added]
According to Al Ahram newspaper, annual passenger car registration fees have increased, across the board, as follows:
• For engine capacities less than 1.0 litres, fees will be E£116, up from E£16
• For engine capacities from 1.0 to 1.3 litres, fees will be E£143, up from E£23
• For engine capacities from 1.3 to 1.6 litres, fees will be E£175, up from E£25
• For engine capacities from 1.6 to 2.0 litres, fees will be E£1,000, with a minimum of E£200, up from E£120
• For engine capacities above 2.0 litres, fees will be 2% of the vehicle’s total value, decreasing by 10% per annum, with a minimum of E£1,000, decreasing by 5% per annum to a minimum of E£200 up from E£120, previously
Comment: Although the increases are high in percentage terms, we believe the new fee structure is not significant in absolute terms for capacities less than 1.6 litres, which represent the bulk of passenger cars in Egypt. For capacities of 1.6 liters and above, the increases can be seen as more significant. Having said that, we do not see a direct impact on new car sales as a result of both the increases in registration fees and the increases in fuel prices, as the traditional buying decision in Egypt is based on the fact that other appropriate transportation means are not available. [Emphasis added]
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