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More local car components: Stimulating investment in Egyptian automobile industry

The government's recent decision to mandate an increase in local components' requirement for car manufacturing in Egypt aims at enhancing the country’s automobile industry

Nesma Nowar , Friday 11 May 2018
Car factory
File Photo: Car factory in Egypt (Al-Ahram)

Trade and Industry Minister Tarek Kabil issued a decree on 30 April increasing the local-component requirement for local car manufacturing to 46 per cent. It also increased assembly-line contributions to local manufacturing to 28 per cent from 17 per cent, reducing it by one per cent each year.

The decision gives companies a year to comply with the new criteria and adjust their operations accordingly.

Kabil said the decision aimed to streamline the car-manufacturing industry in Egypt according to fair and transparent criteria, adding that the previous target for local components had not reflected reality and had not helped achieve the ministry’s objective of establishing a car industry based on manufacturing and not just assembly in the country.

The minister added that the decision was part of a national strategy for car manufacturing being prepared in cooperation with various bodies. The strategy includes incentives and guarantees to attract investment to the industry.

The decision also includes the formation of a committee tasked with keeping track of the implementation of local content changes and measuring the percentage of local components in each car model.

The committee will be headed by the assistant to the trade minister on industrial matters and will include the head of the Industrial Development Authority (IDA), among others.

“The new decision is a very good one that sets proper criteria for measuring local components in car manufacturing,” Hamdi Abdel-Aziz, former head of the Federation of Egyptian Industries Engineering Industries Chamber, said.

He said the decision gave an opportunity to manufacturers to boost local components and thus added value. Under the new decision, local components are hiked to 46 per cent, of which 28 per cent will be contributed on the production line and reduced by one per cent every year.

Abdel-Aziz said that raising the production line contribution from 17 per cent to 28 per cent was necessary to give the market a greater chance to adapt. Raising the local-component requirement would help stimulate investment, he said.

“We can consider this as part of a transitional period to get us to what we want to achieve,” Abdel-Aziz told Al-Ahram Weekly. He added that the transitional period would smooth out any teething problems, giving the market time to adapt.

The decision had been discussed in advance with car manufacturers, he said. The committee formed by the decision would also help to identify and resolve any problems, he added, including by drawing up facilitation arrangements with manufacturers.

Board member of the Egyptian Businessmen’s Association Magdeddin Al-Manzalawi said the new decision would increase the added value of Egypt’s car industry. He said it aimed at boosting the car-manufacturing industry in the country, which, started 50 years ago, without notable development. He added that current local feeding industries would not be able to cover the 46 per cent requirement for local components, and new industries should be set up to help to meet it.

Al-Manzalawi said the decision could also help to encourage exports. “Companies will now think about manufacturing components in Egypt in order to meet the requirement, but supplying the local market alone is not likely to cover the cost of production, so they will seek to export as well,” he told the Weekly.

The decision comes amid talk of an anticipated automobile directive that has yet to be discussed in parliament.

The directive, which aims to encourage local assemblers to move further up the value chain into manufacturing in return for incentives that would not be enjoyed by cheaper imports from the EU, Morocco and Turkey, has been stalled for months, with no clear timeline on when it is likely to be presented to parliament.

Starting on 1 January 2019, customs duties on European Union-assembled cars will fall to zero, making fully-assembled imports more cost competitive than those assembled in Egypt.

*A version of this article appears in print in the 11 May 2018 edition of Al-Ahram Weekly with headline: More local car components 

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