Egyptian automotive manufacturers see sales growth and future expansion

Egypt is expanding its automotive industry, following a series of new developments aimed at boosting domestic production capacity. The most recent development came in January 2019 when German manufacturer Mercedes-Benz announced it was planning to open a vehicle assembly plant in the country, which will be constructed by a local business partner.

This announcement follows the launch of the first assembly line for the Kia Sorento sport utility vehicle in December 2018, as part of a five-year, LE4.2bn ($238.7m) deal signed in March 2018 between South Korea’s Kia Motors and Egyptian International Trading.

Local Production

Hisham Tawfik, the minister of public enterprises, told local media in January 2019 that while there were 12 automotive producers with assembly lines in Egypt, local components accounted for only 17% of the final product. The government aims to raise this to 46% by 2030, partly through the revival of the state-owned El Nasr Automotive Manufacturing Company. Tawfik stated that several international firms had shown an interest in investing in the idea, with a final agreement expected in the first half of 2019.

This model of a strong industry ecosystem where manufacturers can source parts locally helped Morocco rise to its current position as a leading car manufacturer in Africa. “Morocco’s development as a centre for car manufacturing can be a good model,” Karim Ghabbour, president of local company Manufacturing Commercial Vehicles, told OBG. “With the appropriate incentives, Egypt can adapt to the market and provide locally manufactured vehicles for export at a competitive price.”

Auto Sales

While figures for full-year 2018 have yet to be released, sales of locally manufactured cars in Egypt appear to be moving in the right direction, posting 18% year-on-year growth to 63,000 units in the first nine months of 2018. The number of imported vehicle sales rose 58% to 67,000 units, helping the industry to achieve overall sales of LE34bn ($1.9bn) across the period. “Demand was dampened by the currency float, but recent numbers are showing it has been recovering,” Kohei Maeda, chairman and managing director for Nissan Egypt, told OBG. “The size of the local market, with its potential for growth, combined with regulatory and logistics access to markets, particularly in East Africa, makes Egypt attractive for investments.”

Market Competition

The market could see greater competition from foreign players following the phasing out of Customs tariffs on vehicles imported from Europe, in accordance with the terms set out in the EU-Egypt Association Agreement. The pact, signed in 2004, outlined the gradual abolition of Customs duties and charges on vehicles imported from Europe over a period of 15 years, with the previous tranche of reductions bringing the levy to 10% of the basic duty in 2018. However, many stakeholders feel the change will have little impact on domestic producers and end consumers due to its phased introduction. Indeed, cars of EU origin with an engine capacity of less than 1.6 litres have not been subject to Customs levies since 2016, meaning a tangible difference on consumer prices is more likely on larger-engine vehicles. Nevertheless, the tariff removal is unlikely to have a broader effect on market prices, as more than 65% of cars sold in Egypt have either a 1.6-litre engine or smaller. Osama Abu El Magd, president of the Automobile Dealers Association, told local media in January 2019 that importers stand to save between LE5000 ($283) and LE10,000 ($566) per car in Customs duties on those with engines larger than 1.6 litres. However, he also expects manufacturers to hike prices, which – combined with price increases implemented at dealerships in December 2018 – would distil the impact of the tariff removal.

“The foundations for the automotive sector’s success are already established, and given the large and rapidly growing market, competitive labour cost and affordable energy prices, there is the potential for major developments in the next decade,” Bilal Chaabi, managing director of car battery manufacturer Chloride, told OBG.