CAIRO: When Egyptian officials made their manufacturing pitch to a group of British auto market brass at a trade show earlier this month, they were able to attach an odd new angle to the standby sells of cheap labor and proximity to growing markets: the two countries’ old colonial relationship.
“British people know the location very well. Historically, they used it before, so it doesn’t need any explanation, said Ali Tawfik, head of the Egyptian Auto Feeders Association.
The Engineering Export Council of Egypt, in coordination with the Society for Motor Traders and Manufacturers (SMMT) of the UK and the Egyptian Auto Feeders Association, hosted a British automotive trade mission in Cairo between Oct. 11-15.
The delegation included 16 British auto manufacturers, who along with EEC Chairman Ahmed Fikry Abdel Wahab – also secretary general of the Egyptian Auto Feeders Association – toured six bus manufacturing and auto parts manufacturing factories in Egypt.
As is the case in many Western nations, the car industry in the United Kingdom has slid recently. Half a dozen British plants have shuttered since 2005. Vehicle production peaked in the 70s at over 2 million per year, and has fluctuated between about 1.3 and 1.9 million since then.
The country made 1.75 million vehicles last year, according to the Society of Motor Manufacturers and Traders, making it 12th in the world, just behind Mexico. By way of contrast, Japan, the world’s biggest manufacturer, made 11,596,000 cars that year.
Companies from the developing world have begun buying out UK plants and producers. China’s Nanjing automobile group purchased MG assets in the country, India’s Tata Motors bought out Ford’s Land Rover and Jaguar operations in the UK, and the investment group that took Aston Martin off Ford’s hands included Kuwaiti firms Adeem Investment and Investment Dar.
With 200,000 employees last year, the car and car parts sectors are still a big part of the British economy, according to UK government statistics. But in general lower-skilled jobs are migrating overseas while British workers move into whiter-collared pursuits, like design and engineering. At the same time, labor and transport costs are rising fast in some traditional outsourcing hubs like China, making the prospect of shipping carburetors from Guangzhou to Prague – or Riyadh – less appealing.
One member of the trade delegation said he was looking to relocate his parts-making business from the UK, and was scouting new spots. Another said his factory was based in China, but rising costs had prompted him to look elsewhere. This is the gap Egyptian manufacturers hope to fill.
Officials and businesspeople have been aggressively pitching their potential over the past few years. “Egypt is opening up, said Hany Barakat, first undersecretary at Ministry of Trade and Industry at the UK auto trade show.
“As simple as this looks, it took Egypt 10 years to decide, he said. “Decisions are no longer taken inside closed rooms in the trade ministry.
To drive the point home, the UK guests were treated to a parade of statistics. The auto parts market in Egypt has grown to $550 million, said Tawfik. Vehicle registrations are up too, 32 percent last year.
Labor is still cheap here, with low-skilled jobs fetching $125 per month, semi-skilled at $175, skilled workers earning $235, and junior and senior engineers making $475 and $1080, respectively. The cost of utilities – predominantly water, land and electricity – is still one-tenth of the cost in Europe, said Barakat.
Manufacturers in Egypt can ship to the UK in 10 to 14 days and to Spain and France in five to seven days, according to a government analysis, and the state gives a series of tax rebates for exporters.
A further sell is that Egypt’s own market is maturing quickly. Last year, Egyptians bought a record 230,000 cars. And despite darkening consumer sentiment over a global recession and still-high inflation, analysts expect the market to grow by at least 15 percent next year.
In contrast, PSA Peugeot recently forecast that Western European demand will plummet 17 percent in the fourth quarter of this year, falling 8 percent for the year overall.
In this context, the underdeveloped markets like Egypt, where analysts guess there are only about 23 cars per 1,000 people, are bound to look appetizing.
But custom duties are still lofty here, despite some cutbacks in 2004. Importers must pay a 40 percent margin on passenger vehicles with engine capacity under 1.6 liters and 135 percent for those above that, largely limiting the market to those who can build their cars here.
