CAIRO: The Egyptian car market has nowhere to go but up.
That’s the idea that one of the industry’s most powerful players, Raouf Ghabbour, CEO of the dominant Ghabbour Automotive (GB Auto), conveyed earlier this week in an interview with Daily News Egypt.
Buoyed by pent-up demand, car sales in Egypt – and thus his business – are flourishing, even as inflation hurdles record after record.
“Here, the penetration index is very low. And the population is very high. And the per capita level is growing, he said. “This is the market to be in for the future.
By Ghabbour’s reckoning, the auto markets of the Middle East and North Africa have been the fastest growing in the world over the last five years. “I do not see this changing in the future, he said. “The population is growing in all these countries and the economies are growing too.
Amid all the talk of the average Egyptian’s economic frustration and the widening gulf between the scant rich and the many poor, analysts and journalists often point to passenger car sales to show that it isn’t all so bad. That sales have boomed from 44,000 in 2003 to an anticipated 230,000 or more this year to prove that a growing, if still relatively small, number of Egyptians are able to afford them.
Inflation, as it hovers above 20 percent, is expected to notch the industry’s growth as consumers’ savings migrate increasingly to food and other more immediate needs. But Ghabbour guesses passenger car sales will slow to no less than 20 percent in the coming year, a still-hefty figure that is echoed in analysts’ predictions.
A parade of statistics released in early August showed that GB Auto itself has profited mightily: Net income in the first half of 2008 leapt 61.7 percent; gross profit was up 59 percent; and passenger car revenues jumped 37.6 percent. At a festive conference last month, the company announced a deal with Brazilian carmaker Marcopolo for a joint venture expected to produce 8,000 buses per year by 2014.
This vigor can be traced to three overriding factors, Ghabbour said: a dearth of good public transport, a swiftly-growing population, and the pervasive “grey economy.
Because public transport is scarce, Egyptians almost always buy cars when they can, analysts say. And as satellite cities, like Sixth of October City and New Cairo, sprout as much as 60 km from downtown Cairo – where many of their residents still work and shop – this trend will likely continue.
In Egypt, “the car is not a luxury product, Ghabbour said. “It is a necessity.
When public transportation is available, it is often lacking. When The Economist, a London-based weekly, listed the “daily humiliations faced in modern Egypt, it did not list those which occur regularly on the metro – the cattle-wise herding, the ubiquitous leering and groping that make a women’s car indispensable – but it easily might have.
Some distinctly Egyptian social factors also feed local demand. “For the Egyptian people, the car means a lot, Ghabbour said. “I know through our labor here – when they start making money, the first thing they think about is either getting married or buying a car. It’s kind of a status thing.
There are still only about 20 cars per 1,000 Egyptians, by most industry estimates, miniscule compared to an average of about 500 per 1,000 people in developed markets.
The auto market can be an important tool for any market’s development, as it is both a cause and effect of economic growth. As people get jobs in the industry’s many factories, service centers and dealerships, for instance, they become better able to afford their own products. A similar principle helped fuel America’s industrial spurt in the early 20th century, when pioneering carmaker Henry Ford’s popularized the idea by raising his workers’ wages enough to afford the Model T cars they made.
But for all its weight, the car industry often depends on policies and trends outside its control. Import laws, customs duties, traffic rules, environmental regulations, interest rates, inflation and the availability of financing all impact how many cars are sold each year.
For instance, Cairo’s crippling congestion is a matter of “discipline rather than the number of cars on the road here, still only about 2.7 million, Ghabbour said. “Egypt can take five times the number of cars it has now, without any problem, if it has proper implementation of the law, he said.
The traffic laws implemented Aug. 1, which updated fines set in the 70s to reflect inflation and growth, should help, Ghabbour said. The state could also offer tax exemptions or other incentives to developers who want to build multiple-story parking garages or other projects that would ease traffic.
Egypt also needs more muscular environmental rules as the number of cars here grows, Ghabbour said. “[Pollution in Egypt] is unacceptable. It’s poisonous. I think we have to have one of the highest cancer rates worldwide, he said.
The costs of pollution – slumping tourism revenues and massive public health costs, among others – will have to be grappled with, Ghabbour said.
Good scrapping systems are an important but often overlooked part of making sure this happens, as hundreds of thousands, if not millions, of cars will need to be scrapped over the next few years, he said.
“This is a fortune, he said. “If they issue a law putting a ceiling on the car age, where will those cars go? To this end, GB Auto is studying to see if a project in this field will be profitable enough to pursue.
For the health of the country – as well as his firm’s pocketbook – Ghabbour said he hopes it will be. He is familiar with the outcome of pollution and traffic gone untamed: Three months ago, he moved out of Giza, where his commute forced him to spend three hours each day on the city’s suffocating streets.
To read the other stories in our monthly special focus on Egypt s automotive sector, click here:
http://www.thedailynewsegypt.com/article.aspx?ArticleID=16537
http://www.thedailynewsegypt.com/article.aspx?ArticleID=16536
http://www.thedailynewsegypt.com/article.aspx?ArticleID=16535
