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

Cairo's printed package prices law is ill-conceived



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

The biog

Name: Abeer Al Shahi

Emirate: Sharjah – Khor Fakkan

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Favourite activities: Bungee jumping

Favourite quote: “My people and I will not settle for anything less than first place” – Sheikh Mohammed bin Rashid.

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Cast: Vicky Kaushal, Akshaye Khanna, Diana Penty, Vineet Kumar Singh, Rashmika Mandanna

Rating: 1/5

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Starring: Alec Baldwin, Diane Lane, Arnaud Viard
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Director: Siddharth Anand

Cast: Hrithik Roshan, Tiger Shroff, Ashutosh Rana, Vaani Kapoor

Rating: Two out of five stars 

The specs

Engine: Two permanent-magnet synchronous AC motors

Transmission: two-speed

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Torque: 849Nm

Range: 456km

Price: from Dh437,900 

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Formula 2 race: 1:35pm
Formula 1 race: 5:10pm
Performance: Guns N' Roses

Key changes

Commission caps

For life insurance products with a savings component, Peter Hodgins of Clyde & Co said different caps apply to the saving and protection elements:

• For the saving component, a cap of 4.5 per cent of the annualised premium per year (which may not exceed 90 per cent of the annualised premium over the policy term). 

• On the protection component, there is a cap  of 10 per cent of the annualised premium per year (which may not exceed 160 per cent of the annualised premium over the policy term).

• Indemnity commission, the amount of commission that can be advanced to a product salesperson, can be 50 per cent of the annualised premium for the first year or 50 per cent of the total commissions on the policy calculated. 

• The remaining commission after deduction of the indemnity commission is paid equally over the premium payment term.

• For pure protection products, which only offer a life insurance component, the maximum commission will be 10 per cent of the annualised premium multiplied by the length of the policy in years.

Disclosure

Customers must now be provided with a full illustration of the product they are buying to ensure they understand the potential returns on savings products as well as the effects of any charges. There is also a “free-look” period of 30 days, where insurers must provide a full refund if the buyer wishes to cancel the policy.

“The illustration should provide for at least two scenarios to illustrate the performance of the product,” said Mr Hodgins. “All illustrations are required to be signed by the customer.”

Another illustration must outline surrender charges to ensure they understand the costs of exiting a fixed-term product early.

Illustrations must also be kept updatedand insurers must provide information on the top five investment funds available annually, including at least five years' performance data.

“This may be segregated based on the risk appetite of the customer (in which case, the top five funds for each segment must be provided),” said Mr Hodgins.

Product providers must also disclose the ratio of protection benefit to savings benefits. If a protection benefit ratio is less than 10 per cent "the product must carry a warning stating that it has limited or no protection benefit" Mr Hodgins added.

If you go
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How to get there: Emirates currently flies from Dubai to Orlando five times a week.
Match info

Uefa Nations League Group B:

England v Spain, Saturday, 11.45pm (UAE)