IN DEPTH: Car components: Smaller parts feed big business

Theodore May
6 Min Read

CAIRO: As anyone who has waded through the jungle of Cairo’s rush hour traffic knows, demand for cars has been growing steadily for years. And all good estimates indicate that the growth trend is sure to continue going forward.

Anticipating growth in the industry and recognizing Egypt’s competitiveness in the export market, the Ministry of Trade and Industry has laid out an ambitious plan to make Egypt a regional powerhouse in auto parts manufacturing.

The cornerstone of the government’s ambitious growth project has been the creation of the Automotive Industrial Park, which officials hope will serve at the nexus for the industry.

To appreciate how far the auto parts industry has come in Egypt, explained Engineering Export Council Chairman Ahmed Abdel Wahab, it is important to note that significant industry growth began only recently.

“Back in the early 1990s, there was very little presence of the auto components industry, he said.

Abdel Wahab also serves as Secretary General of the Egyptian Automobile Feeders Association.

Though the industry began to grow rapidly throughout the 1990s, it took until 2003 for it to make meaningful inroads to the exports market.

The entrance of foreign companies like Pirelli in 2003 opened Egypt to foreign markets and allowed it to cut its teeth (or spin its wheels) on the international stage.

At a time of increased demand for vehicles of all stripes, when donkey and Hummer can been seen running cheek by jowl down the boulevards of Maadi, the auto industry is sprinting to keep up.

New vehicle registration, which hovered at a modest 72,000 in 2004, has exploded in subsequent years, rising to 228,000 in 2007.

The Engineering Export Council predicted that the number of new vehicle registrations would increase steadily over the coming years and would hit 640,000 in 2012 – a staggering figure that will demand heavy investment in the industry.

The industry hopes, roughly, to keep steady the proportion of total cars manufactured domestically.

On a global scale, this industry moves a massive amount of cash. Experts estimate that the industry does about $1.2 trillion in trade annually. Abdel Wahab said that $900 billion is attributable to original equipment manufacturers, while $300 billion comes from the aftermarket.

In Egypt, total exports were closer to $220 million in 2007, making up about 30 percent of total domestic production, but it is a figure that industry insiders expect to see multiply.

Roughly 90 percent of auto industry exports from Egypt are shipped to Europe.

In order to feed the growing domestic appetite for autos in Egypt, the local industry imports a significant amount of raw materials. Industry regulations stipulate that manufacturers must use 45 percent local content in the production of auto components.

“The sector that has the highest potential for growth, argued Abdel Wahab, “is the bus industry.

In an effort to recognize that potential, many of the wiring harnesses, tires, casting and brake components, among the staples of the auto component industry in Egypt, are manufactured on a growing scale for buses.

The very decision to bulk up the auto components industry, as opposed to car assembly, is in itself strategic decision by the Ministry of Trade and Industry.

Auto component manufacturing “cuts across many industries, noted Abdel Wahab, “and requires high labor content.

Unlike the auto-assembly industry, component production cannot be easily automated. Egypt’s slim wages allow it to compete aggressively in labor-intensive industries.

Additionally, the auto component industry requires diverse technological capabilities. This gives ample opportunity for long-term growth.

To meet the growing consumer appetite for cars and the government’s thirst to be an industry leader, the country inaugurated in January of this year a 2 million square-meter industrial park dedicated to the auto industry.

Of the 1.6 million square meters available for sale, the government has received commitments on 450,000 square-meters.

“That’s much better than we expected, commented Abdel Wahab.

While the government is ably pursuing a policy that will feed the growing vehicular demand both domestically and internationally, it has done little to counteract the worsening traffic situation in Cairo, which has contributed to a poorer quality of life and diminished productivity.

If the government can marry its aggressive auto production plan to traffic-reducing measures, as evidence suggests it is trying to do, the Egyptian consumer may be able to reap the rewards of the booming auto parts industry – with no strings attached.

To read the other stories in our monthly special focus on Egypt s automotive sector, click here:

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