CAIRO: Suddenly they were everywhere: burnt orange Skoda sedans cruising the streets of Cairo. This sporty new model seemed to have appeared overnight; a common phenomenon in a city with a fast-growing automotive industry.
Cars have long been a source of status across the world. In Egypt, consumers compete for automotive prestige by importing the newest models from abroad before they are available at home. Nowadays, however, the selection available at lower prices domestically is tempting consumers into buying local.
As one of the only domestic automotive manufacturers in the Middle East, and the largest producer in North Africa, Egypt’s automotive industry has made an impact at the domestic and regional levels in the production of passenger cars, commercial vehicles and buses.
According to the website of the Egyptian Ministry of Investment, Egypt currently boasts 29 assembly plants. International brands such as BMW, Citroen, Daewoo, Jeep and KIA run manufacturing operations along with state-owned companies like IVECO/Nasr and NASCO, which operate under contract with companies like Fiat.
As abrupt influxes of new brands and models like the orange Skoda suggest, the Egyptian automotive industry is expanding rapidly. Skoda, a Czech motor company and a subsidiary of Volkswagen, was established in Egypt in 1994 and has sold over 40,000 cars to date.
According to the website of the company’s Egyptian distributor ARTOC, “As Egyptian consumer demand took off, we sought opportunities to deliver quality brands and products that we identified to have a significant demand within the Egyptian consumer market.
Indeed, domestic consumer demand is the driving force behind the industry’s expansion. According to Barclay’s Bank in Egypt, 180,000 vehicles were sold in 2007, up 36.4 percent from 2006. At the same time, production increased 12.6 percent in 2007 to 103,140 vehicles, according to Business Monitor International’s Egypt Autos Report 2008.
Despite increases in production, demand has continued to outstrip local supply, resulting in a trade deficit of $2.54 billion in 2007 as vehicles are imported to fill the gap.
This increase in demand for cars is attributed to the improved purchasing power of the Egyptian pound, among other factors. In the domestic market, the lower prices and wide selection offered by local manufacture are a big draw for consumers, while imported cars have become more accessible due to tariff reforms that have decreased customs duties.
The import deficit is expected to grow as demand for imported cars increases parallel with demand for domestically produced vehicles in the coming years.
Even though domestic markets have demand to spare, domestic producers are determined to expand their activities into the export arena. For several years now, local subsidiaries of companies like Nissan and BMW have been enlarging their Egyptian operations, investing in new factories and state of the art equipment in an attempt to reach regional export markets.
While prospects for the future of the industry are good, some market factors are both a blessing and a curse for the Egyptian automotive market. The appreciation of the Egyptian pound, for example, has increased domestic purchasing power and demand, while making manufacturing more expensive.
Similarly, rising export markets have allowed Egyptian industry to expand beyond the domestic sphere, but the export of locally produced vehicles results in a shortage that must be filled by more expensive imported cars.
In short, domestic production has a lot of room to grow. With planned expansion set to reach 155,000 vehicles by 2012 according to Business Monitor International, production needs to accelerate fast in order to take full advantage of Egypt’s bountiful consumer market.
As the latest imported BMW’s share the streets with state-produced Egyptian Fiats from the 1970s, it’s easy to see why the automotive industry is booming: Domestic production of international brands has allowed consumers to find a middle ground between expensive imported vehicles and Egyptian made products historically characterized as low quality.
For the upper-middle classes, quality domestic production makes the ownership of multiple vehicles feasible, while the middle classes find themselves able to buy higher-quality cars at more reasonable prices. With income inequality through the roof, this more democratic access to quality transportation is a positive development.
But will it last? If supply continues to lag behind demand, Egyptian consumers may find themselves lacking in options as manufacturers eye lucrative export markets throughout the region.
With any luck, the locals will continue to find new models appearing overnight on Cairo’s streets as the Egyptian automotive industry builds on its past successes to maximize the market’s growth.
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