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New Prime Minister Decree to Regula

New Prime Minister Decree to Regulate the Prices of Goods
Recently, the Prime Minister issued a decree forming a new working group to provide goods and regulate the prices of goods (the “Decree”).[1] The Decree was made in the context of a sharp rise in food prices,[2] and within a few days after the President declared the government’s intention to take extensive measures to counter the rise of prices of some basic goods/commodities. Following the President’s statements, several state authorities – including the armed forces – began to provide basic food commodities at discounted prices.
The New Working Group
According to the Prime Minister's Decree, the new working group will be responsible for taking necessary measures to provide/supply goods in markets and regulate their prices. The Decree also defines the measures that will be taken by the new working group, such as determining the targeted areas and goods, developing the mechanisms required for the management of goods and the controlling of prices, following up on the importing of goods by the Ministry of Trade and Industry, and coordinating with the chambers of commerce, leading suppliers and media to control prices and raise citizens’ awareness. In order to emphasize the importance of its role, the working group is considered to be in a permanent session that started on November 4, 2015 and that will go on until the completion of its mission on November 20, 2015. During this time, the working group is obliged to hold a weekly meeting in the presence of relevant ministers and officials.
Can the Government Set Prices?
Interestingly, the responsibilities of the working group did not directly include "price-setting", but was rather limited to the "follow-up and monitoring of prices through the Ministry of Interior". This is the case, despite the fact that many press reports included the possibility of applying a price control system on basic goods, and in particular on food commodities. The question that presents itself here is this: can the government legally set and control the prices? Because of the growing importance of the issue of price increase and the steps taken by the government to reduce the high cost of living and counter this increase, the following paragraphs will provide a simplified explanation of the legal structure governing the pricing system in Egypt – apart from the economic assessment of those steps –. This will clarify the legal environment and framework that will limit the measures taken by the newly formed working group and any other governmental authority. It should be noted that the legal framework regulating the government's ability to set prices, especially the prices of food and commodities, is an intricate system with many complexities. Essentially, the governing laws and decrees include:
  • Price Control and Profits Determination Law No. 163 of 1950.
  • Provisions Law No. 95 of 1945.
  • Investment Guarantees and Incentives Law No. 8 of 1997.
  • Protection of Competition and the Prohibition of Monopolistic Practices Law No. 3 of 2005.
  • Consumer Protection Law No. 67 of 2006.
  • Presidential Decree No. 1770 of 1971 establishing the General Organization for Exports and Imports Control.
Generally, there are two ways that the government can attempt to directly control prices: 1) set a clear price for a commodity, 2) determine the profit margin allowed for the different trade links (manufacturers, wholesalers, retailers). Although the above-mentioned laws allow the government to broadly intervene in the functioning of the market mechanisms and the determination of prices and profits, the influence of these laws and decrees – as explained below – was strongly reduced in the past years.
Price Control
The Decree refers to Law No. 163 of 1950 promulgating Price Control and Profits Determination,[3] which replaced an older law issued in 1945 in the aftermath of World War II. The 1950 Law, which is still in force after undergoing several amendments, gives broad powers to the government to intervene in setting the prices of food commodities in particular. It states the formation of a "Pricing Committee" in each governorate that would be responsible for setting maximum prices for food commodities and other items listed in the attached schedule to the Law. It also gives the Minister of Trade and Industry the authority to modify this schedule accordingly. Normally, the maximum price that is set and approved by the committee is “binding upon all persons who sell all or some of the items regulated by the pricing system", which means that this system applies to wholesalers, retailers and other parties in the sale chain. The Law imposes a prison sentence between one and five years on whoever violates the pricing system, and/or a fine ranging from three hundred to a thousand Egyptian pounds. As for administrative penalties, the Law gives the Minister of Supply the right to close any violating shop for six months or deprive the merchant of some of its profits until the criminal proceedings against him are concluded. Interestingly, the Law imposes a fine of fifty Egyptian pounds on anyone who buys a commodity at a price higher than the fixed price, even if this is done for consumption purposes. The Law also states that a suspended sentence is not admissible in case of conviction, which means that the court is obliged to impose and implement the sentence if a person was convicted. In addition to the above Law, there are other laws such as the Provisions Law[4] which give the government broad powers over some of the basic commodities such as wheat, sugar, cotton. The Provisions Law allows the Ministry of Supply and Provisions to first identify its need of these crops before they are sold to the private sector. It also allows the Ministry to set the prices of the items that it will seize. Another law which gives the government similar price-setting powers is the Protection of Competition Law. Article 10 of the Law gives Cabinet of Ministers the right to set the prices of commodities for a specified period of time after consulting with the Competition Authority. This, however, is only done exceptionally as a measure to counter monopolistic practices.
Profit Margin Determination
In addition to the adoption of a specific price for some commodities, the Law promulgating price control and other related legislation adopt an additional approach to influence and control the prices of some goods, which is determining profit margin. For instance, Law 163 for the Year 1950 authorizes the relevant minister to determine the maximum allowable profit for manufacturers, importers, wholesalers and retailers with regards to any commodity that is imported or locally manufactured, if the minister finds that such profits exceed normal limits. Following the same philosophy, the Minister of Provision’s Decision No. 180 of 1950 gives the right to the Minister to specify a maximum profit margin for factory owners, wholesalers and retailers of some materials and goods. The Decision also includes a breakdown of the different profit margins for some non-food items such as sanitary ware, agricultural machinery and tin.
Reducing Government's Price-setting Authority
The above-mentioned laws present a very centralized image of the Egyptian market in which the government has absolute power over the private sector to force it to adhere to specific prices and profit margins. However, the legal framework has been modified significantly in the past years (or decades) to lessen the executive authority’s power over setting prices. Article 10 of the Investment Guarantees and Incentives Law of 1997 states in unequivocal terms that "no administrative authority has the right to intervene in setting the prices of commodities or products or to determine a company’s profit". Thus, any company or establishment subject to the Investment Law (companies engaged in certain activities listed in that Law) can set the prices of its products without being subject to the price-setting authority of the government. Nonetheless, some of the goods and materials are still controlled by the government, such as medicines, natural gas and diesel. Furthermore, goods in the Egyptian market in general can be subject to pricing system if they do not benefit from the general principle and protection stipulated in the Investment Law.
Conclusion
There are several reasons behind the increase in prices, especially the price of food commodities. The means at the government’s disposal to counter such increases are many, such as entering the market directly to influence the supply side, providing some goods and products at lower prices, preventing and prohibiting some monopolistic practices that were condemned by the Law of Protection of Competition, and finally directly setting the prices of some goods and products. Even though the legal framework still allows the government to set the prices of some products, the legislative changes that occurred in the nineties of the last century – especially with the issuance of the Investment Law in 1997 – meant that the government essentially gave up its broad powers over price-setting. Thus, rather than set the prices of commodities, it seems that the government has decided to influence the supply side and subsequently the prices by providing some products at lower prices and in larger quantities. This is evident in the statements and procedures undertaken by the government since the beginning of this month, such as providing food commodities at discounted prices and carrying out inspection campaigns. Since the mission of the working group to manage and adjust the prices of goods will be finished on November 20, 2015, it seems that the coming days may witness some legislative and regulatory changes and developments. These in turn may reveal the government’s approach and thinking in countering increases in the price of basic commodities.   [1] Prime Minister Decree No. 2884/2015 forming a working group to manage and adjust the prices of goods; Official Gazette, Issue No. 44 (bis) (t), 4 November 2015. [2] Central Agency for Public Mobilization and Statistics Press Release, the rise of monthly inflation rate by 2.8% for the month of September 2015, 8 October 2015. [3] Law No. 163/1950 on Price Control and Profits Determination, Egyptian Gazette, Issue No. No. 90 (bis), 14 September 1950. [4] Law No. 95/1945 issuing the Provisions Law, Egyptian Gazette, Issue No. 145 (bis) (a), 6 October 1945.
Recently, the Prime Minister issued a decree forming a new working group to provide goods and regulate the prices of goods (the “Decree”).[1] The Decree was made in the context of a sharp rise in food prices,[2] and within a few days after the President declared the government’s intention to take extensive measures to counter the rise of prices of some basic goods/commodities. Following the President’s statements, several state authorities – including the armed forces – began to provide basic food commodities at discounted prices.
The New Working Group
According to the Prime Minister's Decree, the new working group will be responsible for taking necessary measures to provide/supply goods in markets and regulate their prices. The Decree also defines the measures that will be taken by the new working group, such as determining the targeted areas and goods, developing the mechanisms required for the management of goods and the controlling of prices, following up on the importing of goods by the Ministry of Trade and Industry, and coordinating with the chambers of commerce, leading suppliers and media to control prices and raise citizens’ awareness. In order to emphasize the importance of its role, the working group is considered to be in a permanent session that started on November 4, 2015 and that will go on until the completion of its mission on November 20, 2015. During this time, the working group is obliged to hold a weekly meeting in the presence of relevant ministers and officials.
Can the Government Set Prices?
Interestingly, the responsibilities of the working group did not directly include "price-setting", but was rather limited to the "follow-up and monitoring of prices through the Ministry of Interior". This is the case, despite the fact that many press reports included the possibility of applying a price control system on basic goods, and in particular on food commodities. The question that presents itself here is this: can the government legally set and control the prices? Because of the growing importance of the issue of price increase and the steps taken by the government to reduce the high cost of living and counter this increase, the following paragraphs will provide a simplified explanation of the legal structure governing the pricing system in Egypt – apart from the economic assessment of those steps –. This will clarify the legal environment and framework that will limit the measures taken by the newly formed working group and any other governmental authority. It should be noted that the legal framework regulating the government's ability to set prices, especially the prices of food and commodities, is an intricate system with many complexities. Essentially, the governing laws and decrees include:
  • Price Control and Profits Determination Law No. 163 of 1950.
  • Provisions Law No. 95 of 1945.
  • Investment Guarantees and Incentives Law No. 8 of 1997.
  • Protection of Competition and the Prohibition of Monopolistic Practices Law No. 3 of 2005.
  • Consumer Protection Law No. 67 of 2006.
  • Presidential Decree No. 1770 of 1971 establishing the General Organization for Exports and Imports Control.
Generally, there are two ways that the government can attempt to directly control prices: 1) set a clear price for a commodity, 2) determine the profit margin allowed for the different trade links (manufacturers, wholesalers, retailers). Although the above-mentioned laws allow the government to broadly intervene in the functioning of the market mechanisms and the determination of prices and profits, the influence of these laws and decrees – as explained below – was strongly reduced in the past years.
Price Control
The Decree refers to Law No. 163 of 1950 promulgating Price Control and Profits Determination,[3] which replaced an older law issued in 1945 in the aftermath of World War II. The 1950 Law, which is still in force after undergoing several amendments, gives broad powers to the government to intervene in setting the prices of food commodities in particular. It states the formation of a "Pricing Committee" in each governorate that would be responsible for setting maximum prices for food commodities and other items listed in the attached schedule to the Law. It also gives the Minister of Trade and Industry the authority to modify this schedule accordingly. Normally, the maximum price that is set and approved by the committee is “binding upon all persons who sell all or some of the items regulated by the pricing system", which means that this system applies to wholesalers, retailers and other parties in the sale chain. The Law imposes a prison sentence between one and five years on whoever violates the pricing system, and/or a fine ranging from three hundred to a thousand Egyptian pounds. As for administrative penalties, the Law gives the Minister of Supply the right to close any violating shop for six months or deprive the merchant of some of its profits until the criminal proceedings against him are concluded. Interestingly, the Law imposes a fine of fifty Egyptian pounds on anyone who buys a commodity at a price higher than the fixed price, even if this is done for consumption purposes. The Law also states that a suspended sentence is not admissible in case of conviction, which means that the court is obliged to impose and implement the sentence if a person was convicted. In addition to the above Law, there are other laws such as the Provisions Law[4] which give the government broad powers over some of the basic commodities such as wheat, sugar, cotton. The Provisions Law allows the Ministry of Supply and Provisions to first identify its need of these crops before they are sold to the private sector. It also allows the Ministry to set the prices of the items that it will seize. Another law which gives the government similar price-setting powers is the Protection of Competition Law. Article 10 of the Law gives Cabinet of Ministers the right to set the prices of commodities for a specified period of time after consulting with the Competition Authority. This, however, is only done exceptionally as a measure to counter monopolistic practices.
Profit Margin Determination
In addition to the adoption of a specific price for some commodities, the Law promulgating price control and other related legislation adopt an additional approach to influence and control the prices of some goods, which is determining profit margin. For instance, Law 163 for the Year 1950 authorizes the relevant minister to determine the maximum allowable profit for manufacturers, importers, wholesalers and retailers with regards to any commodity that is imported or locally manufactured, if the minister finds that such profits exceed normal limits. Following the same philosophy, the Minister of Provision’s Decision No. 180 of 1950 gives the right to the Minister to specify a maximum profit margin for factory owners, wholesalers and retailers of some materials and goods. The Decision also includes a breakdown of the different profit margins for some non-food items such as sanitary ware, agricultural machinery and tin.
Reducing Government's Price-setting Authority
The above-mentioned laws present a very centralized image of the Egyptian market in which the government has absolute power over the private sector to force it to adhere to specific prices and profit margins. However, the legal framework has been modified significantly in the past years (or decades) to lessen the executive authority’s power over setting prices. Article 10 of the Investment Guarantees and Incentives Law of 1997 states in unequivocal terms that "no administrative authority has the right to intervene in setting the prices of commodities or products or to determine a company’s profit". Thus, any company or establishment subject to the Investment Law (companies engaged in certain activities listed in that Law) can set the prices of its products without being subject to the price-setting authority of the government. Nonetheless, some of the goods and materials are still controlled by the government, such as medicines, natural gas and diesel. Furthermore, goods in the Egyptian market in general can be subject to pricing system if they do not benefit from the general principle and protection stipulated in the Investment Law.
Conclusion
There are several reasons behind the increase in prices, especially the price of food commodities. The means at the government’s disposal to counter such increases are many, such as entering the market directly to influence the supply side, providing some goods and products at lower prices, preventing and prohibiting some monopolistic practices that were condemned by the Law of Protection of Competition, and finally directly setting the prices of some goods and products. Even though the legal framework still allows the government to set the prices of some products, the legislative changes that occurred in the nineties of the last century – especially with the issuance of the Investment Law in 1997 – meant that the government essentially gave up its broad powers over price-setting. Thus, rather than set the prices of commodities, it seems that the government has decided to influence the supply side and subsequently the prices by providing some products at lower prices and in larger quantities. This is evident in the statements and procedures undertaken by the government since the beginning of this month, such as providing food commodities at discounted prices and carrying out inspection campaigns. Since the mission of the working group to manage and adjust the prices of goods will be finished on November 20, 2015, it seems that the coming days may witness some legislative and regulatory changes and developments. These in turn may reveal the government’s approach and thinking in countering increases in the price of basic commodities.   [1] Prime Minister Decree No. 2884/2015 forming a working group to manage and adjust the prices of goods; Official Gazette, Issue No. 44 (bis) (t), 4 November 2015. [2] Central Agency for Public Mobilization and Statistics Press Release, the rise of monthly inflation rate by 2.8% for the month of September 2015, 8 October 2015. [3] Law No. 163/1950 on Price Control and Profits Determination, Egyptian Gazette, Issue No. No. 90 (bis), 14 September 1950. [4] Law No. 95/1945 issuing the Provisions Law, Egyptian Gazette, Issue No. 145 (bis) (a), 6 October 1945.