Egypt’s automotive industry: Between challenges in local production and an electric future

As a main pillar of the industrial development in Egypt, the local automotive sector includes one of the largest assembling industries in the region. Over 500 automobile feeding companies serve 16 assembly plants, providing air conditioning units, plastic for interiors and exhaust components and other essentials.

Business Forward looks at what the sector in Egypt looks like, what the government is aiming for, the challenges facing local production and Egypt’s ability to adapt to a future of electric cars.

The government is banking on the automotive sector
Earlier this year, Minister of Public Enterprises Hesham Tawfik said that there are currently 12 active automotive producers with assembly lines in Egypt. Local components comprise only 17% of the final product – a percentage that the ministry aims to increase to 46%, according to a report by Oxford Business (OBG).

Tawfik is shooting for this increase through recovering state-owned car manufacturer El-Nasr Automotive Manufacturing Company, adding that international firms are keen to revive the company. Agreements are expected to be sealed by the end of the first half of 2019.

The main export market for Egypt’s automotive feeders is Europe, to which 80% of locally produced auto parts are shipped. Investments in the sector totaled $3 billion in fiscal year 2017/2018 with exports reaching $562 million. The government is planning to bring those investments to $5 billion while generating $3 billion from exports by 2022, according to a report by N Gage Consulting.

The demand side: What do Egyptians drive?
Sales of locally assembled cars in Egypt have increased by 18% year-on-year during the first nine months of 2018, according to the Automotive Marketing Information Council (AMIC); while the sales of imported vehicle grew by 58%. In the mentioned period, the industry’s overall sales were worth LE34 billion.

The AMIC also stated that throughout the first 11 months of 2018, 123,500 passenger cars were sold, compared with 88,500 vehicles during the same period in 2017. The sales volume of buses increased to 14,400 during the same period – 25% higher than the previous year – while 28,800 trucks were sold in 2018 compared to 20,700 in 2017.

Egypt as an exporter and destination for automotive manufacturing
Chairman of Nissan Egypt Kohei Maeda previously told OBG that domestic market demand declined following the currency devaluation in 2016.

“It is the size of this local market, with its potential for growth, combined with regulatory and logistical access to markets particularly in East Africa that makes Egypt attractive for investments in automotive manufacturing,” he says.

Exports also have an appealing endeavor in this market, according to an N Gage consulting report, especially when the 26-country Tripartite Free Trade Agreement for Africa comes into effect throughout 2019. However, the report also argues that trade agreements have not been previously helpful in terms of exporting automotive parts.

The challenges in the sector
Although the market has promising growth potential, a report released by the Federation of Egyptian Industries (FEI) named poor taxation and customs systems as some of the challenges that hinder the sector’s growth.

The report, presented as a recommendation to the Cabinet earlier this year, recommends levying the value-added tax (VAT) and domestic license fees on imported auto components and spare parts that are used in manufacturing and not sold in the market.

In efforts to tackle taxation issues, a deal has been signed in 2004, gradually removing customs duties and charges on vehicles imported from Europe over a period of 15 years. The latest reduction brought the levy to 10% of the basic duty in 2018.

A low volume of local manufacturing is another challenge, according to the FEI. The federation suggests boosting annual local assembling to around 500,000 cars by 2020, as a necessity to match the import total.

Automotive feeders are also disappointed by the government’s failed promise in passing an Automotive Directive, which has been delayed according to report by the American Chamber of Commerce (AmCham). The directive was supposed to grant vehicle manufacturers incentives based on production volume and the percentage of local components used.

A future for foreign investments and electric cars
The Parliament has been receiving proposals to build 100% locally-manufactured cars.

In light of further boosting local production, Mercedes-Benz announced in January that it will partner with a local manufacturer to open a vehicle assembly plant in Egypt; this comes four years after the German manufacturer suspended its automotive production at its previous Egyptian plants. Details about the agreement have not yet been disclosed, according to local media reports.

Not only is the government seeking to revitalize the sector through increasing local production volumes and attracting foreign investors, but it is also drafting incentives to promote a future for electric cars in the country. The parliament is currently drafting a law to regulate imports, sales and services of all electric vehicles.

The sector is taking upon electric vehicles as a new market trend that envisions Egypt’s strategy in boosting sustainable transport projects, reducing emission levels and fuel consumption. Earlier this month, the Ministry of Interior announced that it will issue temporary insured licenses and license plates for electric car until procedures related to licensing electric vehicles are regularized.

In April, the country signed a deal with Beijing’s automaker Foton Motor to manufacture 2,000 electric buses in the country. In addition, electric-charging infrastructure manufacturer Revolta opened Egypt’s first electric car charging unit in 2018 on Cairo-Suez Road.

Egypt’s automotive sector is pivotal for economic growth objectives, according to N Gage Consulting, able to attract foreign direct investment (FDI) and stimulate exports if it continues to promote a future for electric cars and run an automotive directive that would turn it into a regional automotive hub.

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