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The automotive sector’s shaky road - Daily News Egypt

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The automotive sector’s shaky road

The Egyptian automotive market can be described in three terms: “suffered, suffering and will suffer”. All the associated parties in the automotive market, including manufacturers, agents and dealers, are familiar with this situation. Those words reflect the internal state of fear, anxiety and confusion that hovers on the horizon. Nobody knows what awaits tomorrow. None …


The Egyptian automotive market can be described in three terms: “suffered, suffering and will suffer”. All the associated parties in the automotive market, including manufacturers, agents and dealers, are familiar with this situation.

Those words reflect the internal state of fear, anxiety and confusion that hovers on the horizon. Nobody knows what awaits tomorrow. None of the market’s parties know what they will be able to provide to customers. No one can determine the prices that should be offered to consumers, who in turn have become more and more susceptible to rising prices.

The needs and fears of tomorrow have forced consumers to accept the bitter reality, even if it makes no sense.

The conflict between the Central Bank of Egypt (CBE) and the agents in the auto market explains everything. Everyone knows that the main reason behind the skyrocketing prices is the CBE’s intransigence through imposing strict regulations over the import of enough quantities of cars to meet the market needs. The importers’ need for dollars pushed them to resort to obtaining dollars from the informal market. Consequently, exchange firms took advantage of this situation, and manipulated the dollar exchange rate day after day, and sometimes hour after hour.

The CBE governor delivered a blow after he announced on radio and television that he does not have a clear-cut plan to reconcile the conditions of the workers in the auto market, urging them to adjust to the current situation and rely on local products and exporting.

Amer’s words claim to support the domestic production and national industry, while in fact the governor has overlooked that the automotive sector as a whole, which can provide the state with nearly EGP 30bn annually, mostly through customs and taxes, according to the minister of investment.  The sector has the second highest income after the Suez Canal. Is the CBE unaware of these figures? Does it believe these billions of pounds annually are dispensable?

There is no doubt that we need these sums, but we need millions of dollars to hit this figure. The question is, how can we resolve this problem in light of the decline of hard currency reserves in the CBE?

It is difficult to follow the CBE governor’s advice, as Egypt has not manufactured anything in the past years – the market has been limited to assembly rather than manufacturing. There is a big difference between the two processes. In fact, the Egyptian components in cars do not exceed 50%, including the paint. Vehicles that are 100% Egyptian constitute only 10-15%, and this is a very small percentage, in which most of the production inputs are imported.

However, in order to increase exports, it is necessary to initially increase production to provide cars at competitive prices in the global market.

One solution lies in providing foreign currencies to the automotive manufacturers and importers at competitive prices so that they can open new lines of credit. This solution is acceptable for some people, but it does not suit the CBE.

Another solution is to export production components, and if exports increase, this will allow manufacturers to open more lines of credits to import their car requirements. This solution was suggested in the automotive manufacturing sector, which remains under establishment.

I believe the most appropriate solution is the quota system, which has been effectively applied in several Arab countries through setting certain quantities of cars to import. These quantities are calculated according to the average size of business during the last five years. This mechanism will allow everyone to be informed of the total number of the cars to be imported in the coming period.

We desperately need to hold meetings with all associated parties in the sector to elucidate the actual situation, rather than relying on assemblies and chambers, which have not helped decision-makers at the affected companies in the past years. This difficult stage requires a wide degree of disclosure and transparency to avoid the “fleeing” of investors from Egypt, to help pull investors out of this dark tunnel.

Mohamed Aboul-Fotouh is the head of the Automotive Section in Al-Borsa newspaper.

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https://dailynewsegypt.com/2016/03/16/automotive-sectors-shaky-road/
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