Daily News Egypt

Egypt's car sector to see reverse trend down the road: Fitch - Daily News Egypt

Advertising Area

Advertising Area




Egypt’s car sector to see reverse trend down the road: Fitch

Construction growth eases slowdown in automotive sector, bus sales affected by tourism hiatus


Egypt’s car sales will face a reverse trend in 2020, in line with the deteriorating morale of both consumers and companies, according to a report by the global credit rating agency, Fitch Solutions.

The report noted that the negative trend coincides with the low local and global economic expectations due to the novel coronavirus (COVID-19) pandemic. As with the majority of countries worldwide, Egypt has been forced to undergo an unprecedented series of closures to mitigate the virus’ severity.

Despite Fitch has expected that car sales would shrink by 8.2% to 165,132 units over 2020, after it had previously predicted an increase in sales of 9.7%.

The report summarises that Egypt’s auto sector will, in general, face significant pressure in 2020 due to the virus’ negative local and international impact. This in turn will see passenger car sales standing at 115,7900 units, while bus sales will witness a greater impact seeing a 20% decline in sales, to settle at 9,518 units. This figure cancels the previous estimates that indicated a 2.1% growth in sales. This decline comes on the back of the severe decrease in the number of tourists during the flight suspensions.

But the expectations also indicated a medium-term increase in demand for commercial vehicles as a result of growth in the construction industry.

Globally, the auto sector will witness many challenges, as the virus drives consumers and companies to focus on core spending. It is anticipated that global sales of vehicles will drop 9.9% during 2020, with the virus continuing to affect production on the back of supply chain disruptions.

Car manufacturers have chosen to suspend production as part of efforts to slow the coroanvirus’ spread and protect employees. As a result, Fitch believes that global auto production will come under pressure in 2020, while vehicles are seeing weak demand.

Strategic analysis of Egypt’s automotive sector

The Quad SWOT analysis matrix analysed a number of the Egyptian automotive sector’s strengths, weaknesses, opportunities, and threats, as follows:

Strengths

Egypt has one of the MENA region’s few production bases.

Leading global brands are locally produced.

Egypt’s geographical location makes it an ideal export hub between MENA and Europe.

Weaknesses

Previous political turmoil has delayed industry strategy issuance.

Foreign currency shortage hinders the ability of vehicle assemblers to pay for imported components.

High-interest rates continue to affect consumer ability to obtain loans to purchase vehicles.

Opportunities:

There is strong growth potential due to Egypt’s size, low vehicle ownership, and large youth population segment

Free trade zones bring competitive imported models to the market.

Public transportation fleet replacement plans will support bus sales and production.

Threats:

Free trade zones make domestic manufacturing less attractive to international brands coming from countries already involved in similar deals.

The growth of other auto production bases in North Africa, such as Algeria and Morocco, pose a threat to Egypt’s position.

Fitch forecasts that Egypt’s vehicle production rate will, between 2020 and 2024, remain at a steady 70,000 units annually, provided that vehicle production will grow at rates of between 1.5% and 2.5% in the next four years. The agency noted that this year will see a 6.9% decrease in vehicle production, against the growth rates of 91.7% and 7.1% during 2018 and 2019, respectively.

During 2020 and 2021, Fitch expects a decline in the volume of sales to the 2018 figure of 170,000 cars, but will rebound to about 180,000 in 2022, and 190,000 in the next two years.

Noteworthy, Egypt’s passenger car sales increased 58.2% to 37,011 units in the first quarter (Q1) of 2020 amid COVID-19 recession, compared to 23,402 units sold in Q4 of 2009, following the 2008 financial crisis. 

Possible imbalances in the supply chain that Egyptian vehicle assemblers will likely face will lead to a decrease in inventory.

Fitch predicted that from 2021 onward, the pent-up demand in the sector will shift from consumers who expect low car prices, to an increase in sales. At the same time, imported car sales remain relatively flexible due to tariff cuts on this segment, while the risks relating to an insecure local currency continue. A sharp drop in the local currency will benefit sales of locally assembled cars, because their prices will decrease compared to imported ones.

Commercial vehicle sales down 8.4%

Fitch noted that sales of trucks and commercial vehicles have increased due to the current strength of Egypt’s construction industry. However, this will be in the medium term, while the potential for the coronavirus to continue spreading will lead to the possibility of construction work being stopped. This would directly and negatively affect the demand for commercial vehicles in the near term.

Expectations indicate that sales in trucks and commercial vehicles would decrease by 8.4% in 2020 to 49,342 units, followed by a rebound in 2021, when an increase of 3.3% is projected to occur. Following this period, Fitch anticipates stable average annual growth of 2.1% during the forecast period between the current year and 2029.

Fitch’s infrastructure team expects that Egypt will maintain its position as one of the fastest-growing construction markets worldwide.

Reduced tourist numbers affect bus sales

Fitch’s expectations for bus sales in 2020 fell to 9,518 units, a decrease of 20% year-on-year (y-o-y), compared to previous estimates that indicated a growth of 2.1% during the same period.

The agency indicated that the demand for buses has largely been driven by the local tourism industry, which it described as strong. However, operators will postpone any purchases of buses until international travel restrictions are fully lifted.

It is anticipated that the demand for buses will recover from 2021 onwards, with a marginal rate of 1.1% during the same period to reach 9,623 units. The demand for public transportation will remain relatively stable during the same period, with the government’s intensified efforts to modernise Egypt’s public transport network also likely to affect bus sales.

Fitch expects urbanisation to rise to more than 60% by 2030, which means increased demand for urban jobs, housing, infrastructure, and social services such as public transportation. Moreover, the recent increase in the cost of public transportation will not do much to discourage consumers.

This is in large part due to the significant increase in the cost of fuel, which will make public transportation the most attractive option for consumers in the medium term. Higher rates of urbanisation in driving and the higher demand for above-average bus sales will also contribute to steady use of a range of bus sales.

With the recent ban on the import of three-wheeled vehicles also in place, taxi operators have become a significant alternative to minibuses in terms of transporting passengers, increasing the demand in this segment.

Topics: Car Fitch

Advertising Area

https://dailyfeed.dailynewsegypt.com/2020/07/14/egypts-car-sector-to-see-reverse-trend-down-the-road-fitch/
Breaking News

No current breaking news

Receive our daily newsletter
Subscribe