Car prices worldwide are increasing due to rises in the prices of raw materials on the back of the war in Ukraine as well as the shortages of electronic chips that intensified during the Covid-19 pandemic.

“The global car market is witnessing a continuous rise in prices due to the escalation of the electronic chip crisis, the decline of production in many factories around the world, and the prolonged crisis in Ukraine,” said Alaa Al-Sabaa, a member of the Cars Division at the Cairo Chamber of Commerce.

Al-Sabaa said that the semiconductor chips crisis was one of the main factors that has affected car production worldwide, leading to delays in production and in importing new shipments of cars.

In Egypt, sales of passenger cars dropped by as much as 20 per cent in April, according to figures released by the Automotive Information Council (AMIC), the industry association to which most distributors report sales. This followed a nine per cent decline in March compared to the same month in 2021.

There are many reasons for the decline, since not only did prices jump due to global factors but also the devaluation of the Egyptian pound in March pushed prices up by 17 per cent, and there have been changes in the Central Bank of Egypt’s (CBE) import rules.

The CBE launched a new initiative in February stipulating the use of letters of credit rather than the simpler and less costly document collection system that earlier had been employed.

According to the CBE decision, Egyptian banks are now intermediaries between the importer and the bank of the supplier of the goods, including cars, guaranteeing that goods conform to the relevant national specifications and assisting suppliers in obtaining their full financial rights as soon as the importers receive their goods.

Although the moves are considered to be important to ensure controls over the quality of goods and regulation within the banking sector, the new rules have made importing a more complicated and costlier procedure.

Al-Sabaa said that Egypt imports about 100,000 cars annually at a cost of $1.5 billion, but foreign companies may stop exporting cars to Egypt for at least three months due to delays in sending letters of credit.

According to local media outlets, a number of international car manufacturers have already frozen their exports to Egypt as importers and distributors are no longer able to secure the needed transfers.

The Al-Mal financial daily quoted sector officials as saying that up to 13 foreign car manufacturers including Peugeot, Citroen, and Fiat are among those that have started to look for alternatives to the Egyptian market.

Al-Sabaa said there were currently no new cars available for reservation in the local market and that available cars are sold at prices higher than the official distribution prices due to the short supply.

The Egyptian Customs Authority also decided last week to increase the customs exchange rate to LE18.65 from LE17, which will translate into a two to eight per cent increase in the price of imported cars, with the least affected being those of European origin as they are custom exempted and only pay taxes.

To deal with the spiraling increase in prices and distributors’ inability to deliver cars, Egypt’s Consumer Protection Agency (CPA) has directed agents and distributors to adhere to the vehicle reservation form that guarantees consumers’ rights.

Anyone who had paid the full value of a car before12 April should receive it without bearing any additional burden, the Agency said. Anyone who paid a down payment should get back what they paid in addition to 18 per cent interest, according to CPA directives.

The government is taking steps to prepare a national strategy for the auto industry that will include a number of incentives for car manufacturers in Egypt, especially of electric cars, and the companies feeding them and will work on developing a competitive local market.

During the Egypt Can with Industry Conference last week, Jihan Saleh, an advisor to the prime minister on economic affairs, said that all the ministries concerned with the auto industry had participated in setting out the national strategy for the localisation of the auto industry in Egypt.

She said that Egypt annually imports cars worth about $4 billion, more than the figure given by Al-Sabaa, and said that the new strategy aims to reduce imports and increase the volume of exports by providing incentives to investors to support the industry.

“The size of these incentives is related to the volume of investments, as well as the local components and added value, in addition to the extent of the reliance on clean technology. There is an incentive in the form of repaying customs dues that is calculated according to these figures,” Saleh said.

Egypt has 17 factories manufacturing and assembling cars that together produce 100,000 cars annually. There are also 300 smaller factories in the feed industries and 80 larger ones, with some of their products being exported abroad, especially brake discs and some electronic parts.