Egypt to provide large custom discounts to power its domestic car industry
EXCLUSIVE- We’re going to be discussing a new set of incentives for the automotive industry this fall. The finance and trade ministries are drafting new incentives to spur domestic manufacturing and assembly that will include large custom discounts on automotive components that peak at nearly 100%, two government sources told Enterprise. Amendments to the Customs Act are now on the drawing board after a series of meetings with representatives of global auto companies, the sources tell us. The amendments could slash the current 40% customs rate for factory-bound car parts according to a sliding scale based on how much local content is in the components.
Cui bono? The measure would benefit component manufacturers as well as both domestic car assemblers and manufacturers. If finalized, still require cabinet approval before being sent to the House of Representatives for debate.
So, what are we looking at?
- An effective customs rate of 28% on components for manufacturers using components that have 10-20% domestic content (representing a 30% customs break);
- A rate of 22.5% on components with 21-30% domestic content (good for a break of up to 50%);
- Customs of 17.6% on components with 31-40% local content (a break topping out at 60%);
- Customs of 8-16% on components with 40-60% local content (or a break of up to 80%);
- Manufacturers using more than 60% domestic content could pay just 5-7.5% customs on the parts under the proposal (good for an effective customs break of up to 95%).
A possible mix of subsidies plus large customs and tax breaks in auto zones? The program could also include significant subsidies for plants set up in dedicated automotive manufacturing zones, the sources said. This could mean 0% customs rate on select imports as well as tax breaks and, potentially, some form of cash subsidy with a sunset clause. The sources didn’t elaborate further.
By way of background: We were told last summer that, after scrapping the original incentive plan (the automotive directive), the government was looking at an alternative strategy that could borrow heavily from one adopted by successful regional players including Morocco and South Africa. The strategy involves a policy of supporting full-fledged auto manufacturing customs-exempt zones that would offer a range of as-yet unspecified tax and customs breaks.
Morocco also offers capex rebates, whereby the state effectively subsidizes the building of qualified plants and provides after-the-fact rebates.
Wait, haven’t we been here before? Yep. The industry has been told for years that successive governments have been working on a so-called automotive directive to provide incentives to assemblers to move further up the value chain into manufacturing. The automotive directive was a blanket policy for the industry, not based on specific zones or geographies. It set minimum production and export requirement to benefit from incentives, which would have included tax and customs breaks that varied by engine size and proportional to the percentage of domestic components used to assemble the vehicle.
A clean break with the past? The sources’ statements come as Trade and Industry Minister Amr Nassar issued a decree last night scrapping former minister Tarek Kabil’s domestic assembly order, according to Al Mal, which ran a copy of the order. Kabil’s policy mandated that 46% of the components of a domestically-assembled car be sourced locally. Assembly of a chassis and body plus painting on a domestic assembly line together qualified as 28% domestic content. The move was widely seen as a harbinger to the long-awaited automotive directive.
What does Nassar’s directive last night mean? (a) It could just simply be clearing the table for the newly formed policy we noted above; or (b) as the new policy itself appears to just be the automotive directive 2.0, last night’s move could just simply be part of the rebranding.