Mixed reactions to government mortgage loan scheme
Egypt, Economics, 7/13/2002

In a desperate attempt to solve the crunching recession that has hit the Egyptian market, the government, through state-run banks, has launched an ambitious scheme to lend employees various sums of money at low-interest rates to be able to buy expensive commodities and home appliances.

The scheme, funded by some LE2 billion, was the brainchild of the General Federation of the Chambers of Commerce.

The federation made the proposal last year after intensive consultations with manufacturers and traders.

According to the scheme bylaws, civil employees, around 5.5 million in government agencies and ministries, would not be given the loans in cash, but rather would apply for loans to finance the purchase of expensive commodities.

They would pay by installments, deducted from their monthly salaries and manufacturers pledged to offer commodities and home appliances for the project at lower prices.

But after further contemplation, traders and manufacturers alike discovered that the project might backfire and aggravate the severe stagnation in the Egyptian market.

Employees who purchase the commodities on loans may rush to sell them back to the market at lower prices, thus hitting the competitiveness of all traders and manufacturers.

On the other hand, small entrepreneurs said the project would only benefit giant firms and department stores, leaving only 'peanuts' for them.

"The market has been facing years of recession and instability. In the past, we used to sell ready-made clothes in one or two days. At the moment, products may be kept in the shop for six months, or even a whole year before finding a client ready to pay," Farid Saad, an owner of a clothes shop, told Sabah el-Kheir weekly magazine.

"I do not believe that the loan program would benefit small shops and companies. The products fairs are dedicated for big producers and traders and we will get nothing," he said.

Meanwhile, economists welcomed the scheme, noting that it would help not only in solving the problem of the recession, but also get rid of the huge stockpile of products and goods in shops and factories.

"Yet, this is a temporary solution to the recession. Solving the crisis needs a long-term plan," Hamdi Abdel Azim, vice president of Sadat Academy for Management Sciences, told Sabah el-Kheir.

"To get out of the crisis, the government should start taking measures to repay its over-due local debts. This will pump money into private and public sector companies alike and will open new investments that will definitely activate the market," he said.

"The recession undermines the economic growth rate. The rate is now at five per cent while the target should at least be seven per cent," he said.

Mahmoud al-Arabi, chief of the Cairo Chamber of Commerce, criticised the scheme for forcing employees to purchase certain commodities.

"Employees should be given the loans in cash to buy whatever they want. These eligible for loans should also include non-government employees with special priority given to newly-weds," Arabi said.

Previous Stories:
  New Canadian oil investments in Egypt   (7/11/2002)
  Ebeid reviews means of boosting bourse performance   (7/11/2002)
  Mortgage law to revive real estate market   (7/9/2002)

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