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Automotive industry achieves economic growth through reducing unemployment - Daily News Egypt

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Automotive industry achieves economic growth through reducing unemployment

Government targets $5bn to invest in feeding industries, $3bn in exports by 2022

The Egyptian car market has witnessed growth and adaptation by consumers following the price hike subsequent to the floatation of the local currency in November 2016. The automotive industry is one of the largest reliable industries that contains a wide range of other manufacturing and feeding industries.

The Egyptian government set a target of $5bn (EGP 83bn) in feeding industry investments, generating about $3bn (about EGP 49.8bn) in exports by 2022. To achieve these goals, in November 2016 the government presented the first draft of the automotive industry strategy in Egypt, which focused on the preference of domestic producers over importers, by encouraging them with tax exemption, but this stirred negative reactions from the European Union, and eventually was rejected. The second draft of the strategy offered some incentives for car producers, but it has yet to be implemented.

The idea of an incentive system included increasing local value-added components that would enable producers to reduce their tax liabilities. This strategy has been successful in other automotive markets, such as Morocco and Tunisia, both of which have large feeding industries, which means giving the suppliers in Egypt –the largest in Africa– an opportunity for tremendous growth in the industry. Egypt needs to increase the domestic production of cars to about 500,000 units by 2020 to match the total imports that cost less than investment in manufacturing and local assembly of cars.

Although the automotive market includes many types (passenger cars, light commercial vehicles, buses, trucks, and commercial vehicles) in addition to the after sales industry, the specialised market for two-wheeled and three-wheelers, which are fully imported from India, China, and Japan; the government is working on incentives to boost electric vehicles. The parliament’s energy committee is drafting a law regulating after-sales services for all electric vehicles.

In the first quarter (Q1) of 2018, car sales grew by 31% to 35,100 cars. In Q1, passenger cars’ sales grew by 24%, while imported and locally assembled cars grew by 21.2% and 40.4% respectively. Truck sales jumped 91% year-over-year (y-o-y) to 7,440 units.

Egypt is a signatory to the World Trade Organization (WTO) General Agreement on Tariffs and Trade (GATT), which means its commitment to reduce tariffs is in accordance with international standards by rates ranging from 0 to 40%. The reduction includes vehicles used to very high customs tariffs.

In 2001, Egypt and the European Union signed the Euro-Mediterranean Agreement, which entered into force in June 2004, after the EU ratified it by member states and Egypt with the aim of promoting political and economic cooperation by gradually establishing a free trade area. European car prices fell as much as expected, and total vehicles imported from the EU fell as a result of a conflict between consumers and dealerships under the “Let it Rust” campaign because that agreement is aimed at balancing and strengthening the Egyptian economy, so we must monitor prices to make the most of that agreement.

The Minister of Industry and Trade, Amr Nassar, said in August last year that the current car legislation, which is being amended, will comply with previous agreements signed with foreign partners, the EU in general, and Germany in particular. A committee composed of the Ministries of Trade, Finance, and Investment is reviewing the automotive directives.

Going back to electric cars, government policy is the main driver of the electric car revolution. It was a good step in exempting electric vehicles (EVs), as Egypt is the first in the region to manufacture EVs. The Egyptian market is big and can accommodate electric cars, making them a tool in changing the layout of the Egyptian automotive sector.

Egypt has already started building charging stations for electric cars on the Cairo-Suez highway, with Revolta Egypt, with plans to reach 300 stations by 2020. The Egyptian company aims to establish 65 charging stations around the country to encourage clean energy use. For his part, the Minister of Electricity, Mohamed Shaker, said that the tariff for recharging electric cars will be at their real cost without any subsidies, adding that electric cars have a better level of reducing emissions of greenhouse gases, which improves the environmental impact of electricity generation and not add more burdens to subsidise the cost of energy.

For its part, many Chinese, Italian, and German companies began negotiating with Egyptian institutions to supply power units next year, where a Chinese company official said that the company has partnered with an Egyptian company to become its agent in the Egyptian and African market, and provide charging units for EVs of various capacities.

Revolta also opened the way for German companies to supply their products in the Egyptian market, where three German companies negotiated with Egyptian institutions to supply electric cars and bus charging units.

Finally, the automotive industry in Egypt is crucial to the country’s ambitious economic growth goals, helping the industry generate significant employment, thereby reducing unemployment, and attracting foreign direct investment as well as stimulating Egyptian exports. As for the electric car industry, it is possible to propel Egypt to become a regional centre.

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