Egypt Autos Report Q2 2008

Egypt's automotive market is likely to remain buoyant over the next five years, following a period of strong car sales growth, according to BMI's latest Egypt Automotives Report. BMI estimates that automotive sales rose 22.3% year-on-year (y-o-y) to 206,460 units in 2007, with car sales up 23% and commercial vehicle sales up 20%, as private consumption and investment helped sustain Egypt's strong economic performance, with GDP up 6.8%. Rising wealth, higher employment, falling inflation and falling interest rates are supporting automotive sales growth. Momentum remains in place for a very impressive growth performance throughout the forecast period, with BMI forecasting sales rising 63.4% between 2007 and 2012.

Meanwhile, the investment picture in Egypt remains as strong as ever, with confidence still high, raising hopes of increased foreign investment in the automotive industry. However, the appreciation of the Egyptian pound and the relatively high cost of automotive production in Egypt will mean that output growth will depend on domestic demand. However, the ratio of vehicle sales to vehicle production will decline from 1.2:1 in 2004 to 1.6:1 by 2010, indicating the declining importance of Egyptian automotive producers to the domestic market. Nevertheless, Egypt's strong demand creates an attractive market for budget carmakers. In response, Indian carmaker Mahindra & Mahindra (M&M) has stepped up its operations with the launch of its Scorpio SUV model in Egypt and Tata Motors is examining the possibility of establishing a car plant in Egypt after deciding in 2006 to re-enter the market. Iran Khodro has also stepped into the competition in the budget car segment, with the opening of a Peugeot Pars assembly line in December 2007 with initial production of 5,000 units per annum. The vehicles produced in the first stage will be sold only on the Egyptian market, with exports to the rest of Africa in the second phase.

Initial surveys appear to confirm claims that trade liberalisation is boosting imported car sales. While tariff reductions may be welcomed by some car dealers, vehicle prices are still inflated by high sales taxes and the cost of motoring is beyond the level of affordability for most Egyptian consumers, particularly in the context of rising fuel prices. Locally-manufactured cars still face a 40% sales tax, while imported cars with engine capacity of 1,000-1,600cc face custom fees and sales taxes amounting to 70% of the total price; imported cars with engines above 1,600cc face a 45% sales tax on top of a 135% customs tariff. At the same time, high oil prices, fuel shortages and currency depreciation have contributed to a general rise in the cost of living that has penalised consumers and prevented them from seeking credit to purchase expensive consumer durables, such as cars.