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Wednesday, 14 December 2016

Spotlight On Business News’ Egypt Automotive Summit

Al Borsa and Business News’ annual Egypt Automotive Summit kicked off yesterday.

On the automotive directive: Peugeot-Citroën appears to have made the choice of whether to assemble in Egypt contingent on the adoption of the automotive directive, according to Jean-Michel lsambert, Middle East and Africa department procurement manager at the company. He added that if the strategy is approved, the chances for investment will increase, Daily News Egypt reports. GB Auto’s Chairman and CEO Raouf Ghabbour also believes in the stabilizing effect the directive will have on the industry in 2018, stating that it is likely more cars will be assembled domestically and exported, bringing in new streams of hard currency revenue, according to Al Masry Al Youm.

In an exclusive interview with the newspaper, Ghabbour dismissed the claims by auto importers and component makers that the strategy would be bad for the industry. The directive would grant importers rebates and tax breaks of up to four times the value of the domestic components they are able to export to the European companies, said Ghabbour. We had noted earlier this month that support for the directive has been divided along assembler-importer lines.

Automotive directive detractors: Bavaria Auto Group CEO Farid El Tobgy came out strongly against the legislation, with the head of the BMW distributor in Egypt saying it doesn’t address concerns of the component industry, according to Al Mal. Component manufacturers and those in other feeder industries concurred, Al Borsa reports. Their concern is that the production targets set out by the legislation are impractical and the component industry cannot keep up with the law’s domestic component requirements, said Tamer El Shafie, head of the Federation of Egyptian Industries auto-feeders department. Attendees also fretted about component manufacturers having the ability to meet European standards, something that doesn’t keep Ghabbour up at night: “We should have faith in our domestic industry … local manufacturers are currently exporting to Mercedes and BMW,” he said in the interview. Other concerns raised at the conference include competition from China for EU and GCC markets, particularly in the buses, is stifling Egypt’s ability to grow its exports to meet the targets of directive, Al Mal reports.

On the state of the auto industry: The float has been the biggest issue facing the industry this year, said the Automotive Marketing Information Council’s (AMIC) Rafat Masrouga, Al Mal reports. Ghabbour, however, argued that floating the EGP was the right move, but the EGP could weaken “as long as consumption and imports significantly outweigh production.” The next few months could create a challenging situation, he acknowledged. Ghabbour is quoted as saying he expects the FX rate to be around EGP 14-15 per USD 1 by June 2017, according to Al Mal. Despite the downturn, AMIC representatives appear to share Ghabbour’s outlook on the industry’s prospects look bright as early as next year, AMAY reports.

Taxation in the industry: The value-added tax (VAT) on auto dealers will be 30% of the profit margin of car sales, after previously being set at 30% of the sales price of the car, said outgoing Tax Authority chief Abdel Moneim Mattar, and currently the special commissioner supervising the implementation of the VAT. Finance Ministry officials continued to defend the so called “price war,” where the Customs Authority issued price guidance on cars as a means to fight back against perceived price gouging by auto dealers. The move, in addition to other customs restrictions, were heavily criticized by the industry at the conference, Al Borsa reports. Separately, Suez Canal Economic Zone (SCZone) chief Ahmed Darwish announced that the SCZone was looking into reducing taxes for the auto industry and the pharma sector, Al Mal reports.

Other highlights of the conference:

  • GB Auto has received preliminary approvals for land to build its USD 60 mn tire factory in the SCZone, according to Al Borsa.
  • Peugeot agent confirms IPO shelved: Cairo For Development & Cars Manufacturing, Peugeot’s local distributors, announced that it has indefinitely delayed plans for an IPO in 2017 as it is awaiting the automotive directive and the economic reversal for the sector, Al Borsa reports. EFG Hermes had been tapped to restructure the company ahead of the offering, Borsa says.
  • Uber announced that it now has c.45,000 drivers in Egypt using its app and plans to launch its carpooling service here, Al Mal reports.
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