CAIRO: Reforms in Egypt’s car industry designed to ensure the quality and standardization of car components, along with measures to encourage exports and a scheme to modernize the country’s ageing taxi fleet, bode well for automobile sector’s growth in coming years.
In January 2010, the Ministry of Trade and Industry announced that new, higher standards would be applied to 127 imported car components, with the new regulations being implemented in three phases. The first phase, which came into effect in August, covers 10 items related to health and safety and the environment, including brakes, lights and tires.
The start date followed a six-month grace period during which the General Organization for Standardization and Quality (EOS) provided local factories with foreign assistance in meeting the new standards. According to Hani Barakat, chairman of the EOS, 90 percent of local manufacturers were able to produce all 10 items in accordance with the new regulations by July, one month ahead of schedule. The second phase will cover 50 more items and the third will extend to the remaining 67. Regulations governing all 127 components will be fully applied by 2013, according to EOS.
The primary goal of the new regulations is to protect Egyptian consumers. In the past cars and components could enter the country without restriction, regardless of their quality. As a result, the market featured many sub-standard parts, which posed safety risks. According to official figures, up to 40 percent of automobile accidents in the country are attributable to technical problems. “The government’s priority is to protect consumers,” according to Barakat.
Effects of the new regulations are already being felt. In late September, the Egyptian Consumer Protection Agency (CPA) ordered a halt to the production and sale of Chinese-brand Komodo automobiles for failure to adhere to EOS guidelines. The ban will remain in place until Komodo, which is locally produced by the Automotive Egypt Company, makes the changes necessary to meet the improved quality standards.
General Motors Chairman and Managing Director Rajeev Chaba told OBG that, “There were previously low-entry barriers for new car products, which meant HSE standards were low. New regulatory frameworks on local components and imported products were certainly needed, particular given that the customer has become more demanding.”
Other companies have also welcomed the changes. Abdel-Kader Talaat, sales and marketing manager at Ford, told local media that the new regulations will not adversely affect the company’s operations since, “our imports of cars as well as components have certifications from the factory that they are original and manufactured according to specifications.” Indeed, he predicted that most dealers will not have problems. “Only those who import cars and components from unknown sources will be affected,” he said.
Barakat insists that the new regulations will not significantly affect car prices, “since the price of the 10 items represents between 4-5 percent of a car’s total price. Assuming that their price increased by 20 percent it will only increase a car’s total price by 1 percent,” he said. That negligible markup should be more than offset by the fact that cars made or assembled in Egypt will now be able to compete with imported ones on quality. Such parity will be crucial going forward because Egypt has agreed to reduce Customs on European-made cars by 10 percent a year, starting in 2010, until they are eliminated by 2019.
Mercedes CEO Mike Nolte told OBG that, “With new customs tariffs loosening restrictions on European imports coming into effect over the few years we will expect to see a significant increase of European-imported vehicles in the Egyptian marketplace.”
Barakat, who came to office last March, said the absence of such regulations has led to low-quality cars being offered to local consumers. "The same make of a certain car is different in Europe than what we import here," he told local media.
Standardization and improved quality should also help attract more foreign investment to the sector and further integrate it into the international market. Indeed, Barakat believes the new standards will prepare Egypt will to become a net exporter rather than a net importer of automobiles — which is one of the government’s goals for the coming years. Towards that end, it has passed a number of measures aimed at increasing exports.
On August 14, the Ministry of Finance approved the refund of fees on car and bus exports paid since the start of the year. Egypt is also in the process of joining the United Nations Economic Commission for Europe (UNECE), which would allow it to exchange cars and components within the group without inspection. This, in turn, would facilitate the entrance of Egyptian exports to European markets. If all goes according to plan, Egypt will join UNECE by early 2011.
Even before the new regulations and customs refunds had come into effect, the sector was enjoying a rebound from a decline in 2009. Salah El-Hadary, secretary general of the Egyptian Automobile Manufacturers Association, has forecast that auto sales will increase by 27 percent in 2010 to about 260,000 vehicles, a new record for the country.
Hadary gives much of the credit for the recovery to the government’s LE 560 million ($96 million) taxi replacement program, which aims to help 50,000 cab drivers scrap and replace their old cars by the end of this year. Thus far the program only applies to Cairo but once it is expanded to other cities it should spur even more growth.
Meanwhile, the government is looking into a similar program to replace old minibuses, which could begin as early as next year. “If the microbus replacement program comes into effect, it will [further] bolster sales, increase domestic output and expand the country’s auto market,” Hadary said.
