The automotive sector currently suffers from many obstacles, which prompted Daily News Egypt to address them in an interview with the chairperson of the Egyptian Auto Feeders Association (EAFA), Ali Tawfik.
What are the recent developments of the automotive industry strategy formed by EAFA?
The cabinet has finally agreed on some articles of the automotive industry strategy which was also submitted to the presidency, and we look forward to discussing it in parliament.
What are the main articles in the strategy?
The automotive strategy focuses on the manufacture of export-ready Egyptian cars by attracting feeder industry companies operating in the domestic market to export their production through Egypt to the Middle East and Africa.
Why did Egypt fail in manufacturing cars at a globally competitive price?
We lack a strong automotive and feeder industry. We should also focus on mass production with a minimum of 100,000 cars of each model.
How do you see the development of the automotive industry in Egypt?
The automotive industry in Egypt has achieved low growth rates over the past 30 years, despite the state’s support of locally manufacturing cars by reducing customs on imported components. The annual production of each local automotive factory did not exceed 30,000 cars.
There are more than 39 car models in Egypt produced by more than 17 companies. However, total local production does not exceed 140,000 cars.
Some Arab states started to produce large quantities of cars, as French Renault established two factories in Morocco and another factory in Algeria. The annual production capacity of each factory is 400,000 cars.
Saudi Arabia launched an automotive project with Jaguar and Isuzu, in addition to the Saudi locally manufactured car Gazal. Saudi Arabia will consume about 1m cars in 2020, which represents a major challenge for the automotive industry and feeder industries in Egypt. These projects may lead to the migration of Egyptian technicians to work in Saudi Arabia.
How could the new strategy contribute to developing the automotive industry?
EAFA urged the government to adopt an automotive project in cooperation with international companies. The strategy aims to establish automotive factories in Egypt with an annual production capacity of 1m vehicles.
What is the targeted local manufacturing ratio?
The project aims to gradually increase its production capacity, beginning with producing 100,000 cars in the first year. The factory will produce two models of the same car brand to cover the differing requirements of the consumers. The first model will run at 1,000/1,300 cc, and the second at 1,400/1,600 cc.
We are working on locally manufacturing 80% of the car’s components within five years, and are currently working on a list of those components. The aim is to export 50% of the company’s output.
Do we have any specifications of the new car?
The strategy stipulates that the Egyptian Organization for Standardization and Quality will ensure that the designs and specifications of the new car match global and European standards (Euro 4), in addition to the manufacturing of some templates and machinery used in automotive production in Egypt.
The strategy also stipulates that Egyptian engineers and technicians participate in the design and development of the car’s components under the supervision of Egyptian universities. The selected Egyptian staff will work in the design office at the parent company, as well as the new office in Egypt. The strategy aims to create a new team capable of continuing the development and launch of the automotive industry in Egypt.
Did you coordinate with certain parties to support the strategy?
The strategy requested that a plot of land in one of the major industrial cities be allocated free of charge in usufruct for 50 years for the establishment of the factory. The new factory is expected to produce 1m vehicles.
The strategy is also calling for domestic automotive companies in Egypt to participate in the project, according to its required production capacity.
Companies in the automotive feeder industry will be welcome to submit their proposals to manufacture the required quantities of car components, in accordance with their willingness to carry out new investments and projects in the components industry.
The strategy requested providing needed funds, as well as granting preferential features for the locally manufactured models when licensing them as a taxi in all provinces. It encourages the formation of taxi service companies to use the local model.
Do you ensure the success of marketing the manufactured car in Egypt?
The strategy includes presenting the car to Egyptians working abroad, particularly in Arab and African regions, and allowing the cars to enter Egypt without custom duties, by applying regulations of Customs Law.
The strategy also grants manufacturing large quantities to be exported abroad, by benefiting from international agreements between Egypt and other countries in the Middle East, Africa, and Europe.
It will also support the government in establishing a research, development, testing, and training institute for the manufacture of cars and car parts. This is in addition to a production project in collaboration with universities and research centres that ensure standards, specifications, and quality.
The government granted lands to the automotive feeding industry companies that serve domestic and foreign cars. These lands are for investment with purchase on favourable terms, and are located next to the land allocated to the project.
This is in addition to granting special bank funds to finance product lines and new equipment required for the investment of locally manufactured components needed for the project, and also granting incentives to export components abroad.
What is the return of the strategy on the Egyptian economy?
The advantages of this strategy on the Egyptian economy and the automotive industry are that it will help Egypt compete with advanced, car-manufacturing countries. It will also grant Egypt a new national income source.
According to the strategy, the global averages show that the production of one car with all its components creates from 6 to 10 jobs, in addition to its associated activities of services, supplies, maintenance, and trade.
The targeted production is 1m vehicles─is that not an exaggerated number for the current period?
If all parties commit to the established criteria, we will reach a local production of 1m cars and will provide at least 6m jobs.
Reaching more than half a million cars a year will turn Egypt from an importing country to an exporting country. This will positively affect the Egyptian economy, and will save the foreign currency used to import cars, components, and spare parts.
What is the expected business size of cars manufactured in Egypt?
I expect higher business and sales rates of cars and components manufactured in Egypt over five years to reach a value of about EGP 75bn a year, of which EGP 30bn are generated from exporting cars and EGP 8bn from components.
Will you focus on specific models?
The production size of the proposed model will be economically privileged.
The cars and their components will be able to compete globally in all foreign markets, which help the project achieve significant growth in the domestic automotive market. They also will help utilise the excess capacity of the Egyptian automotive factories, and thus, raise the economic feasibility of projects.
How does the strategy contribute to the development of other industries?
Reaching the desired production size is enough to develop many of the currently new components industries. These industries are the core of many other engineering industries, which will lead to significant growth and development in many different industries.
Egypt will begin to export the proposed car model to regional and global markets and take advantage of international agreements.
The manufactured cars will have a great marketing opportunity abroad, taking advantage of the purchasing power of Egyptians living abroad, which is the segment we will target.
How will you finance the project?
Reducing funding cost is one of the expected results of the project. Funding the project will occur through state-owned banks, including the National Investment Bank (NIB).
We also seek to gain external support through joint agreements in the auto industry.
The project will revitalise private companies, and will contribute to the automotive trade to finance the purchase of manufactured cars for citizens and bodies in instalments.
The strategy will also contribute to establish, update, and deepen the manufacturing of local cars through the provision of components. This will encourage local and international automotive manufacturers to produce cars in Egypt. This is besides the abundance of high quality components at good prices and customs privileges.
Moreover, the strategy will contribute to place cars as goods exempt from customs in bilateral agreements.
It will also provide work for technical centres of design, tests, specifications, calibration, and maintenance, which will be the basis for the automotive industry in Egypt.
Are any foreign entities willing to participate and invest in Egypt?
We have already begun communicating with some of the international companies to come and invest in Egypt. We talked to Volkswagen to allow local and global feeding industry companies to manufacture its products in the Egyptian market and export them after selling them locally.
We are also expecting that the number of feeding industry companies will be more than five companies, but I prefer to not disclose their names at the moment.