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Monday, 25 September 2017

Battle Royale of the auto sector

Battle Royale of the auto sector — importers and local assemblers duke it out in the press over economy and Automotive Directive: Tensions between auto importers and local assemblers were evident at this year’s Automech Formula, with both corners taking to the pages of Al Borsa to debate their visions for the future of the industry and the economy.

In the red corner and standing for the assemblers was GB Auto Chairman Raouf Ghabbour, who said that delays in passing the Automotive Directive had not hurt the automotive sector, but rather it delayed its development and growth. He warned, however, that scrapping the bill — which has stalled in parliament thanks to a concerted lobbying effort by importers — may lead to downsizing at auto factories and even some of them closing down, allowing the industry to be addicted to imported vehicles. He expressed confidence that the government was adamant about passing the act, which would give assemblers incentives to go further up the value chain into manufacturing, giving them a measure of protection against what they say are unfair benefits enjoyed by Turkish, EU and Moroccan imports.

Ghabbour defended the central bank’s decision to raise interest rate hikes, saying the move was a necessary reaction to counter the inflation resulting from the EGP float. In an extensive interview with Al Borsa on the economy, Ghabbour said that the lifting of subsidies also necessitated the interest rate hikes, saying he believes that the CBE’s monetary policy is in place for the “greater good” of the economy even though the float of the EGP has cost his company some USD 100 mn. He expects that the CBE will ease interest rates towards the end of 2017 or early 2018 as inflation gradually eases. With characteristic wit, Ghabbour shot down any suggestion that the private sector is owed compensation from the state as a result of changing exchange rate and monetary policies (you hear that, contractors?).

As for future plans by GB Auto, Ghabbour announced that the company plans to invest EGP 800 mn in the Suez Canal Economic Zone, adding that negotiations on that investment with the government are ongoing. He said that the company’s strategy for the most part to adapt to the economic challenges had been to expand its financing and after-sales services divisions.

The Importers hit back: Ghabbour’s sentiment on the state of the sector naturally drew some opposition from pure importers, whose statements to the press at Automech Formula did little to disguise their disdain for the government’s monetary and export-focused trade policies. In a separate interview with the newspaper, Karim Naggar, head of Kayan Egypt — SEAT’s licensed distributor in Egypt — disparagingly called the CBE’s monetary policies confusing for the sector. “Austerity measures” including the interest rate hikes have led to liquidity drying up in the nation, causing a 50% decline in auto sales and making it impossible to keep replacement parts in stock. Taking the short-term view, he also criticized trade policies, saying that curbing imports would deny the government much-needed customs revenues.

Naggar did not mince words in his objections to the Automotive Directive, saying that without setting quality control standards, Egyptian auto exports would not be able to compete. The proposed bill would not enforce such measures, he said, calling it a “protectionist” piece of legislation. His major gripe, however, lies in the “damage this would have to Egypt’s trade agreements with its largest trading partner, Europe.”

As for future plans by Kayan, Naggar revealed that the company is in talks with Bavarian Auto Group and the Egyptian German Automotive company to partner an auto parts factory, with an eye towards exporting drum brakes and car wiring to Volkswagen.

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