In anticipation for the release of the long-awaited auto industry strategy, a German consulting firm has been doing its best to complete drafting the bill in cooperation with the Ministry of Industry.
Ahmed Samir, head of the industrial committee in parliament, said that his committee expects to receive the automotive strategy this month.
He added that the government has assigned a major international office, operating in Cairo, to reformulate the draft strategy and amend some of its items to benefit from other countries’ experiences in this field.
Parliamentary sources said that the government has asked a former official in the Ministry of Industry to prepare a detailed memorandum on the future of the car industry in Egypt, in light of the international agreements signed by the country.
Following the inauguration of the Imbaba Automotive Training Center earlier this week, Minister of Trade and Industry Tarek Kabil announced that the auto industry strategy will be issued in early 2018. He added that the German consulting office will reformulate the strategy in light of remarks made by parliament and the Ministry of Industry.
The strategy is based on imposing an industrial development tax for cars with 1,600cc capacity worth 30% of its value, 100% for cars with 1,600–2,000cc capacity, and 135% on cars with more than 2,000cc capacity.
The proposed strategy stimulates the local automotive industry and exports through exempting local or imported cars from part of the taxes, less than the planned industrial development tax. The strategy, however, requires imposing at least one of the following three axes.
First, an incentive to deepen the industry is granted to companies that produce vehicles, if they register an increase in the ratio of locally produced and locally assembled vehicles to 45-60% for passenger cars up to 16 passengers and 45-70% for small vehicles, over a period of eight years.
Second, the vehicles will be exempted from the industrial development tax if the company manages to increase its production according to the strategy, which requires producing 60,000 cars with capacities less than 1,600cc annually. It also requires producing a minimum of 8,000 vehicles with capacities greater than 1,600cc annually, in addition to 50,000 medium-sized transport vehicles.
The third axis stipulates exempting the product from the industrial development tax, if the company implements the “export incentive strategy” that requires exporting components valued at 25-40% of the total value of the factory’s local production or the total import value for the companies that do not have local factories.
Raafat Masrouga, the honorary chairperson of the Automobile Market Information Council (AMIC), said that according to the expected growth rate for 2024, the car market may add about 340,000 vehicles, including 170,000 locally produced cars. Masrouga added that Egypt only has six factories for passenger cars with a total capacity of 115,000 cars, and four factories for pickup cars with a total capacity of 55,000 cars.
He further added that the average production of a passenger car factory reaches about 19,170 cars, while the average production of a pickup car factory is about 13,750 cars.
Masrouga pointed out that the targeted production volumes are not based on accurate marketing studies, adding that the strategy did not take into account the possibility of establishing new factories.
He noted that the car market in Egypt will not absorb more than 200,000 cars in the current year, assuming that the share of domestic production is 100,000 vehicles at best.
The passenger car factory with the highest marketing ability will not sell more than 40,000 cars in 2024, which makes the targeted production of 60,000 cars annually impossible.
Moreover, the best pickup car factory will not produce more than 35,000 cars in 2024, which makes the targeted production of 50,000 cars annually impossible as well.
These figures prove that no factory can achieve the target production rate in the strategy. In addition, the strategy did not mention establishing new plants unless they will export all their production.
Masrouga claimed that the “incentives” provided in the new strategy are not in favour of consumers, ruling out that local factories or car agents can export their production, because the parent companies, except one brand, have not granted their approvals yet.
Moreover, the automotive factories will not have any price or technological competitiveness if the current agents of global parent factories continued working without actual partnership with the parent companies.
He pointed out that increasing the local component by more than 45% will increase the cost of production and prices, as well as affect the export capacity to foreign markets, because increasing the local component requires a distinctive price advantage to compete with other products.
He ruled out the locally produced car prices can reach the exported car prices, even if the local component ratio registered 45%, suggesting that the parent companies manufacture their cars in factories inside free trade zones on Egyptian territory.
With regard to the establishment of the Industry Development Fund, Masrouga said that consumers will not be affected by the new tax paid for the fund.
Masrouga added that the draft strategy suggests that the factories participating in the programme would pay the industrial development tax in advance, according to the specified values in the startegy. These values are higher than the incentives to be granted to companies that will meet the strategy’s requirements.
The new strategy stipulates that the government would deduct 0.5% of the sales of each company for the benefit of the Industry Development Fund, and the rest will be transferred to the state treasury.
He warned that the incentives would represent a kind of burden on the auto industry. He added that the establishment of the Industry Development Fund will have a negative impact on the development process, being a bureaucratic and financial impediment.
Importers and local factories would not accept paying 0.5% of the sales to the fund, as the industry return would not provide the potentiality of achieving rapid development.
Masrouga called for the abolition of the measures protecting domestic products as an advanced step which will have positive results in the near future, with the reduction of customs to 10%, which will benefit the state and the consumer.
He hopes that the strategy identifies the target production volume from this year until 2024.
Masrouga asserted that the Industrial Development Authority should identify the method of calculating the local component ratio, otherwise it will allow corruption, which will affect the current and future plans.
The strategy should also clearly identify the real domestic value added to the targetted local components. As the increase of the local component ratio should reduce the price for domestic market and export, otherwise it will lose its competitiveness.