4 - 10 January 2001
Issue No.515
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Al-Ahram Weekly On-line 4 - 10 January 2001 Issue No.515 |
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Shifting gears
The financial problems faced by Daewoo, the Korean industrial giant whose operations include car manufacturing, and its subsequent restructuring hold a great many lessons for the future of the automotive industry in Egypt, an industry whose very existence is dependent on the assembling of multinational brands.
When Corporation filed for bankruptcy over two months ago, the question posited by those working in the market was how this would impact Daewoo's automotive joint venture here. And although Daewoo Egypt has announced that it will continue in the domestic market, this still does not answer the question of how. What is the future of this investment? How will it obtain the car components needed for its assembly operations, given the radical changes in production which are expected to take place in the parent company? The answers remain far from clear.
What is at stake here is not whether Daewoo will continue its car-making operations in Egypt, but how our automotive industry as a whole will fare in the coming phase.
People working within the automotive industry readily concede that the sector is facing chaos. And it is a sector in which Egyptian investors have contracted, via joint ventures, to assemble no less than 12 international brands, including GM, Mercedes Benz, BMW, Daewoo and Hyundai.
These projects cater to a limited market. Demand does not exceed 65,000 new cars per year, in effect the production capacity of a single factory. The result has been a dissipated pattern of investments, with some ventures producing as few as 300 cars annually. The question to be asked, then, is whether there are any benefits that accrue to the existence of such a high number of assembly factories. Surely consolidation would be the more obvious course to be followed by those who want to develop a national automotive industry?
In the leading car manufacturing economies -- Japan and Korea are the most obvious candidates -- it is not a multitude of factories assembling different brands that has been encouraged but small ventures, the feeding industries that produce the components used by car manufacturers. Yet despite the fact that it is by this kind of medium scale enterprise that the industry can primarily develop, and although time and again it has been reiterated that Egypt's competitive edge is in exporting car components, no steps have been taken in the direction of either consolidation or the support of much-needed feeding industries.
Given current conditions, how will Egypt's automotive industry cope with the ongoing liberalisation taking place in this sector and the progressive reduction of customs demanded by the GATT? Come 2005 and the minimal customs imposed on imports will see the market inundated with low-priced cars manufactured by the world's major exporters. It does not take much guesswork to surmise what will then happen to Egypt's joint ventures with their global brand names and their limited production capacity. They will stand little, if any, chance in the face of this kind of fierce competition.
The fact that economic policy makers are intent on giving freer reign to market forces does not mean that the state should relinquish its role in the directing of investments. Someone, after all, has to keep an eye on developments in the decade to come, to take, in short, a longer view. So why, despite awareness by economic decision makers of all the salient facts -- witness the recent statements made by Minister of Industry Mustafa El-Rifa'i on the automotive sector -- has such a disparate, dissipated pattern of investments been left to proliferate? Why has there been no endeavour by either the government or business federations to organise these ventures into an industry capable of surviving?
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