Egypt Autos Report Q3 2009

In part due to Egypt's relative insulation from the effects of the global credit crisis, BMI maintains its forecast for a 5.% fall in automobile sales in US dollar terms in 2009, with a rebound seen coming no earlier than the second half of 2010. In volume terms auto sales should reach 638,000 units by 2013. BMI believes that the market will undergo a short period of lower sales in the first half of this year and an overall annual fall of perhaps up to 20% in some sectors of the autos market. This is mainly due to the effects of the global financial crisis, which is continuing to have a severe impact on Egypt's domestic demand and fixed investment dynamics across the full range of domestic production, as well as on secondary auto-related markets, and both imports and exports. Changes made earlier this year in the trade tariff structure should help mitigate against the problems facing local operations, but a slightly more restrictive credit market will continue to hit, particularly the lower end of the domestic passenger car market, and in turn increase demand for used cars and rentals. Furthermore, the inflation rate is expected to come down in Q309, but remain relatively high enough to impact the consumer's appetite to spend, as the central bank will likely keep rate cuts on hold.

Meanwhile, the trade deficit in the Egyptian autos market, which rose 80% in 2008 to an estimated US$
4.35bn, has fallen off, although BMI still expects an increase in exports in the next two quarters.

However, the deficit is seen staying relatively high as the manufacturing sector remains unable to keep up with demand.

On the political front, the government's erratic, in part pro-active, approach to the domestic credit sector is a key factor influencing the fate of the car sector. In late March 2009, the central bank launched an EGP15bn (US$2.7bn) lending program aimed at enhancing credit growth and boosting the mortgage market, durable goods ??