Localising the car industry

Tuesday 21 Jun 2022

Major steps are being taken to localise car manufacturing and associated industries in Egypt, reports Khaled El-Ghamry

Localising the car industry
The government is designing incentives programmes to encourage the localisation of the automotive industry

 

Egypt is seeking to become a regional hub for the automotive industry in order to cover the needs of the local market and major parts of Africa.

During a visit to the East Port Said Industrial Zone last week, Prime Minister Mustafa Madbouli launched the National Strategy for Localising the Automotive Industry.

He said that by 2035 Africa will be needing five million cars. Companies wishing to invest in the sector in Egypt would be well placed to benefit from this demand through the free-trade agreement between Egypt and other African countries.

The government is designing incentives programmes to encourage the localisation of the automotive industry, Madbouli said, adding that more will be offered when companies introduce new technologies and consider environmental aspects.

Additional incentives will be made available for companies that manufacture cars that run on clean energy sources, such as electric vehicles, he said.

One day after launching the strategy on 15 June, Madbouli witnessed the signing of a memorandum of understanding (MoU) between the General Authority for Investment and Free Zones (GAFI) and a leading Japanese company, Sumitomo, to set up a factory manufacturing electrical components for cars.

The factory is scheduled for operation before the end of 2023.

Another MoU was also signed on 14 June between the Suez Canal Economic Zone (SCZone), the Sovereign Fund of Egypt, the East Port Said Development Company, and the Egyptian International Motors Company.

The MoU aims to localise automotive and associated industries in the Suez Canal Industrial Zone east of Port Said through the establishment of a joint complex for the manufacture of vehicles and associated supplies.

In the first phase, the complex is scheduled to produce 75,000 cars annually. It will meet local and regional needs, export to different countries, and attract more international automotive companies to manufacture cars in Egypt.

Rami Gad, general manager of the Egyptian International Motors Company, Renault Egypt, believes East Port Said will be a mecca for the automotive industry in the region, being a logistical area that includes manufacturing, shipping, and unloading for cars and other goods, such as cement and grains.

The area has the latest scientific systems and equipment, and these will reduce accidents and minimise time delays and losses, thus decreasing the cost of final products. Unloading grain usually takes about 30 days in the ports, but in East Port Said port the process takes no more than two days, Gad added.

The exceptional location of the port on the Mediterranean Sea and the entrance of the Suez Canal also facilitates export to Europe, Africa, and the Far East.

The East Port Said complex comprises a production line for paints, an assembly line, presses, and the equipment required for manufacturing vehicles. If manufacturers share these lines, services, and facilities, the cost of production will decrease and so will the price of locally manufactured vehicles, Gad said.

The facilities will encourage export operations, increase the competitiveness of Egyptian products, and supply the Egyptian market with its automotive needs.

In a decade or so from now, annual demand in Egypt for cars will rise to 600,000, according to studies, an attractive figure for international automotive companies to manufacture their cars in Egypt.

Gad added that factories producing associated automotive supplies in the industrial complex, along with the use of technology in transportation, will facilitate production and reduce time and costs, all helping to make Egypt a leading producer of cars in the region.

Negotiations to draft the National Strategy for Localising the Automotive Industry began in 2018, Khaled Saad, secretary-general of the Egyptian Association of Automobile Manufacturers, said, with many meetings held between the then minister of investment and manufacturers, agents, the heads of banks, the deans of public-sector engineering faculties, and representatives from the Central Bank of Egypt.

However, the strategy did not see the light at that time.

Following the hike in the exchange rate and the reluctance of global car manufacturers to supply Egypt with cars because of delayed payments caused by the rationing of hard currency, the government realised the importance of the sector.

It decided to benefit from the automotive sector instead of spending foreign currency on importing cars, opting to support the localisation of the automotive industry and attract foreign investments to this sector to fulfil the needs of the local market and export to the wider region, Saad explained.

The state is thus focusing more attention on the automotive sector, with the release of the strategy and the announcement of a set of incentives for manufacturers. Saad noted that the Sumitomo facility will cover the local market and also export, adding that Egypt’s new road network, various ports, and new industrial complexes will attract a large number of investors to the automotive sector.

He said that the East Port Said complex will help to increase the local components in cars from 30 to 45 per cent, covering the needs of the local market and exporting the surplus.

Hussein Mustafa, former executive president of the Egyptian Association of Automobile Manufacturers, said the new strategy means that the Egyptian automotive industry and associated industries will advance under one umbrella, the Supreme Council for the Automotive Industry.

The council will comprise representatives from the Ministry of Trade and Industry, the Ministry of Finance, and other institutions.

To maximise production and increase the employment of local components, Mustafa suggested further coordination between factories producing component parts. He said it was important to raise the quality of manufactured products to meet international standards in order to export to global markets and also for Egyptian products to venture into new markets.

He proposed studying obstacles holding back the industry, with a view to resolving them along with any tax and customs problems that may be impeding the automotive industry.

In addition to acquiring land with adequate utilities for factories in industrial areas, Mustafa said the council should include representatives from the private sector with a view to exchanging expertise with government agencies that have a wealth of data on the automotive sector.

A version of this article appears in print in the 23 June, 2022 edition of Al-Ahram Weekly.

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