A multi-pronged approach is needed to help Egypt’s auto sector overcome its challenges: The government must combine its plan to provide customs breaks to auto companies with R&D incentives, new licensing regulations, and a comprehensive e-mobility strategy in order to stimulate growth in the lagging auto sector, according to a report (pdf) published by Egyptian public policy consultancy Lynx Strategic Business Advisors. The Madbouly Cabinet’s current version of its incentives strategy aims to increase demand for locally-produced components by reducing customs duties for auto companies to as little as 5.6%, depending on the percentage of local content used.

The incentives strategy doesn’t go far enough: Lynx recommends that the government introduce tax breaks for feeder companies and component manufacturers in order to provide them with the financial resources necessary to move up the value chain. A package of export incentives — such as subsidies, low-interest loans, and tax exemptions — should also be introduced to encourage assemblers and manufacturers to increase business activity overseas.

More needs to be done to stimulate R&D: To generate added value in the sector, the government should introduce measures specifically designed to encourage R&D investment. Patent-linked incentives, tax breaks for innovation and product development, and government financial support for R&D would assist feeder industries and companies aiming to produce original equipment. Lynx also recommends that the government devise a strategy for increasing the use of electric vehicles, and introduce new licensing regulations that would ban vehicles that are more than 30 years old.

It’s not all bad: Egypt has major economic potential since the implementation of the bold economic reform program, Lynx says. The EGP float, fiscal reform and developments in the energy sector have all made positive impacts on Egypt’s economy. On top of this, the government’s existing stimulus plans for the sector, projects like the Suez Canal Economic Zone, and the low operating costs compared to other countries give Egypt a competitive edge.