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Automotive market faces accusations - Daily News Egypt

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Automotive market faces accusations

Figures raise the question: Is the market experiencing a fake crisis?


By Ahmed Amer

A number of automotive sector experts warn of the state of pessimism experienced by the market due to the continuation of the dollar crisis, high prices, and increased waiting lists to receive cars. The Central Bank of Egypt (CBE) however revealed a 113% increase in the sales of cars and their components during 2015, compared to last year.

Figures announced by the CBE show the provision of dollar for the automotive sector to be larger than that in 2014, which did not see such increases in car prices of as currently.

Car prices will rise by 2.5% from the current price after the dollar price jumped on Thursday and Sunday and will officially register at EGP 8.03, while its price in the parallel market reached EGP 8.45, board member of Automotive Division of the Chamber of Commerce in Cairo and chairman of El-Sabaa Automotive Group Alaa El-Sabaa said.

Agents and distributors are buying dollars from the black market at high prices as a result of the sector being at the bottom of the list for opening letters of credit. This reflects the vision of government officials and how they consider cars to be provocative goods.

The primary objective of reducing the value of the currency against the dollar is to invite foreign investors to pump their investments in the Egyptian market, he said. However, not creating a real investment environment before making such decisions will stop investment in the automotive sector.

Car sales fell by 11% in 2015 compared to last year’s sales as a result of the CBE’s decisions to set a minimum cash deposit. El-Sabaa said the sector has been expecting to achieve sales growth exceeding 30% during 2015. After imposing severe restrictions on opening letters of credit, sales declined below the target since the beginning of the year.

He called on the governor of the CBE to provide currency for the import of vehicles and spare parts, as it should with the rest of the goods. The governor should not consider cars as a luxury commodity. “Every Egyptian has the right to be provided with all their requirements and if the state is not able to provide currency for the import of cars, then the state has to provide a decent transport system than can take people to and from anywhere in Egypt,” El-Sabaa said. The automotive sector accounts for 62% of total customs earnings, while taxes and customs duties from that sector account for 14-15% of the state GNP.

Chamber of Engineering Industries Chairman Hamdi Abdel Aziz told Daily News Egypt the automotive sector’s problem  is not limited to the dollar exchange price but rather the availability of the dollar itself.

Measures taken by CBE to eliminate the parallel market followed by considering cars luxury goods have made it harder for sector workers to open new letters of credit for the import of component for local assembly or importing cars to meet customer demand.

The impact of a stronger dollar against the pound will be limited with an expected 1%-2% increase in the price of cars, Abdel Aziz said, noting that he does not believe that a lower price of the pound against the dollar will attract investors. The main problem hindering investment in Egypt now is bureaucracy, he said. Obtaining lands to build factories is getting more difficult while other countries grant investors lands for free to attract investment.

The lack of fixed exchange rates adds more burdens on investors, driving them away from the Egyptian market, Abdel Aziz said, noting that the CBE’s restrictions on dollar deposits have made it harder for foreign investors to transfer their profits outside Egypt.

The Automotive Division of Giza’s Chamber of Commerce anticipated several rises in car prices over the next three months since the dollar has been devaluating to $8.03.

Head of the Automotive Division at the Chamber of Commerce in Giza Omar Balbaa said the rising price of the dollar pushes the sector towards a long recession. Car traders were forced to raise their selling price in light of the dollar problem, which led the demand on cars to decline.

He said the continuation of the dollar crisis pushes agents and distributors to sell cars at higher prices, which impacts consumers most since they suffer from what he called overpricing. Local car assemblers are raising their selling prices since they pay more for importing the components they use.

An official at Credit Department of the National Bank of Egypt said banks did not stop opening letters of credit for the automotive sector due to its importance, but there are other priorities that top the list.

The official said the CBE gave instructions to banks to prioritise strategic goods, which contributes to reducing inflation and face food commodities price hikes. The automotive sector is one of the most important sectors to banks and some companies have yet to finish their paperwork, which contributes to the delay.

The total credit facilities granted to the automotive sector at the NBE amounted to $400m during the first quarter of 2015, in addition to more facilities worth EGP 150m under consideration.

The problem of shortage of dollar liquidity in Egypt played an important role in reducing opening letters of credit for all state sectors. This was not only limited to the automotive sector, and the CBE recently issued instructions obliging banks to not grant any credit facilities but to non-strategic goods from the exceptional bids that are put forward weekly. This is in addition to the necessity to be directed to strategic goods only.  This decision contributed to reducing banks’ direction towards the automotive sector due to not being among the strategic goods, the official added.

The high price of the dollar against the pound is irrelevant to the high price of cars at the moment, said Raafat Masrouga, honourary chairman of the Automotive Marketing Information Council  (AMIC). Most auto companies, if headed for importing their cars and spare parts, are dealing with the euro and the latter is witnessing a clear decline against the pound.

Masrouga confirmed that most companies tend to raise the prices of their cars using the high price of the dollar as an excuse and are actually still selling from their stocks. If these companies are up to importing, they deal in the European currency to avoid the problem of obtaining the dollar.

The companies sell their cars at unreal and high prices, known as the overpricing phenomenon.  This gives the company an impression that the car is witnessing a high demand from customers. When the price of a car rises, the company monitors the decline in purchase orders and then moves to make discount offers on cars, as a corrective procedure to the marketing error committed by the company.

Daily News Egypt was previously told that the cabinet tasked a group to monitor car prices for 2015 to compare it to the previous year, identify the reasons for the high prices, and then make new decisions to solve the high prices issue.

Car prices will rise in light of the continued devaluation of the pound against the dollar, according to Chairman of the Board of Directors and CEO of GB Auto Ghabbour Raouf Ghabbour’s previous statements to Daily News Egypt.

He said those who work in the sector cannot fully afford the rise in taxes and customs and the fact that at the beginning of the year, the dollar’s price was EGP 7.12 but at the moment it officially reached more than EGP 8.03. This must be translated into an increase in prices until there is a balance in earnings.

During his participation in the meetings of the International Monetary Fund (IMF) and the World Bank in Peru last month, Hisham Ramez, former governor of the CBE, said the foreign exchange reserve is reducing.  Any country undergoing such economic conditions must have its own priorities; the CBE does not print the dollar but administrates it to achieve the priorities of the Egyptian economy.

“We announced that car manufacturers are importing large cars at a value of $3.2bn this year, compared with less than $1.5bn last year,” Ramez said. “This is a new record. What is actually strange is that car prices have risen despite the devaluation of the euro against the pound and the low customs value, which means that prices are exaggerated since they increased by 113%.”

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