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Wednesday, 4 September 2019

Car manufacturers say floating customs exchange rate adds more burdens on the industry

Floating customs exchange rate adds to car manufacturers’ concerns: The government’s recent move to float the customs exchange rate presents additional obstacles for local car assemblers and could lead to more price increases in an already troubled market, Egyptian Automobile Manufacturers Association (EAMA) spokesman Khaled Saad told Al Mal. No distinction has been made on the customs treatment for imported components and fully-assembled cars, which could raise input costs and force local assemblers to raise prices at a time when they are struggling to compete with no-customs imports, Saad said. This could discourage investments in the sector, as well as hamper efforts to persuade international companies to assemble cars in Egypt.

Background: The Finance Ministry decided earlier this week to scrap the monthly customs exchange rate introduced in 2017, and revert to setting the rate on a daily basis according to FX rates announced by the central bank. Analysts warned yesterday that the move could drive inflation up in the coming months if the EGP falls against the greenback. The Madbouly Cabinet in July approved a package of incentives for auto manufacturers to stimulate domestic auto manufacturing and assembly. The customs breaks would be split into three tiers according to the percentage of local content used.

The automotive industry is already struggling with low sales: Egypt’s car sales dropped 6.5% y-o-y to about 90k vehicles in the first seven months of 2019, compared to 96.3k vehicles a year earlier, Al Mal reported, citing a report from Automotive Marketing Information Council. The automotive sector has slumped this year following a recovery in 2018, with car sales down across the board on a yearly basis. Sales of passenger cars plunged 10% in 7M 2019, while sales of locally assembled cars sales fell 9.3% and imported car sales fell 3.8%.

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