Tuesday,21 November, 2017
Current issue | Issue 1366, (26 October - 1 November 2017)
Tuesday,21 November, 2017
Issue 1366, (26 October - 1 November 2017)

Ahram Weekly

A domestic auto boom?

The government’s automotive directive is expected to be finalised within the next few weeks, reports Ahmed Kotb

 

Local components in vehicle assembly will rise from 45 to 60 per cent
Local components in vehicle assembly will rise from 45 to 60 per cent

The government’s long-debated automotive directive, legislation that will regulate the car-manufacturing industry in Egypt, is expected to be approved by parliament in November, and the local car industry is preparing for an expansion of manufacturing.

The legislation aims to provide incentives to the Egyptian car industry by increasing the number of local components in vehicle assembly from 45 to 60 per cent. It stipulates that car factories should produce no fewer than 60,000 vehicles annually over eight years in order to benefit from tax and customs exemptions among other incentives.
 
Additionally, the directive includes a 10 per cent import tariff on cars, along with an industry development tax that varies from 30 per cent on cars with engines below 1,600cc, 100 per cent if the engines are between 1,600cc and 2,000cc, and 135 per cent on cars with engines above 2,000cc.

The terms of the legislation have been discussed between government officials, the Egyptian Automotive Manufacturers Association and the Egyptian Auto Feeders Association to try to reach middle ground on disagreements that have delayed approval of the strategy.

Among the controversial terms is the percentage of locally produced components. The legislation has seen resistance among some automakers who have asked to keep the local components lower than 60 per cent. Importers were also concerned about the incentives given to locally assembled vehicles under the legislation, against cars imported from the European Union which should enjoy zero per cent customs duties by 2020 according to Egypt’s free trade agreement with the EU.

The automotive directive was first discussed at the First Egypt Automotive Summit in 2014, where officials from the car industry met with experts from various automotive companies to discuss the need for a government strategy dedicated to the automotive sector. The strategy was introduced in parliament in October 2016 and sent to German experts for review after discussions across several sessions.

“The automotive directive is very important for the growth of Egypt’s car industry,” said Abdel-Moneim Al-Kadi, deputy head of the Engineering Industries Division at the Federation of Egyptian Industries, adding that car feeding industries in Egypt could help the sector grow exponentially over the next few years.

The importance of such growth is not limited to the automotive sector, explained Omar Balbaa, head of the Cars Division at the Giza Chamber of Commerce. “The Egyptian economy will benefit from a stronger car industry, with billions of dollars expected from new investments and exports,” he stated.

Balbaa added that the local industry has to improve to compete with imported vehicles that continue to benefit from international trade agreements. “The automotive directive is expected to allow for that, especially when the quality of local components is enhanced,” he said.

Cars that are locally assembled or manufactured will be cheaper, which will encourage importers to find a new competitive pricing scheme, Balbaa added. This will benefit the consumer. Importers can purchase cars with fewer unneeded options to bring their cost down, he added.

“Imported cars still enjoy a great deal of popularity among customers because of their high quality,” Balbaa pointed out, adding that this will help keep sales of imported vehicles high.

However, Al-Kadi said that the directive would likely not be so beneficial to smaller car factories in Egypt because they would not be able to benefit from its incentives if they did not meet the production capacity needed. However, the bigger producers needed it to achieve greater growth, he said, as well as in order to attract more investment.

There are currently 17 car-assembly factories in Egypt, each producing about 25,000 vehicles a year. More international motor companies are looking to invest in the market after the official approval of the automotive directive, including Chinese automakers like Zhenjiang Geely that plans to establish a manufacturing base that will export to neighbouring markets, according to Deputy General Manager Stephen Chow.

“We plan to start exporting from Egypt to the African market by 2019,” Chow said in an interview with the Al-Mal newspaper, adding that the company aims to have a local market share of 20 per cent of sales. Its current share stood at 2.3 per cent over the first eight months of 2017, he said, compared to 1.8 per cent during the same period last year.
 
“We are waiting for the incentives offered by the automotive directive in order to start implementing our plans,” Chow said.

Tarek Kabil, Egypt’s minister of trade and industry, announced last month that Egypt aimed to attract $5 billion in investment for the automotive industry, to be added to the current investment of $3 billion.
 
He also hopes to increase exports to $3 billion on an annual basis. Since Egypt currently does not fully manufacture a complete vehicle from A to Z, the minister was referring to exports of the local car feeding industry, along with cars assembled locally.

According to Kabil, Egypt plans to see the manufacture of 500,000 vehicles annually by 2022, with 100,000 of these exported. Car exports were worth $69 million in the first half of 2017, while exports from feeding industries reached $286 million from January to July 2017.

There are 100 companies working in Egypt’s automotive sector employing some 86,000 people, according to the Ministry of Trade and Industry.

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