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Sunday, 19 June 2022

Egypt works to gather momentum for its localization push

By the numbers — The new customs breaks coming to your industry: Egypt has been undertaking several measures to tip the trade balance in our favor by putting incentives that encourage producing complete products or components within the country. The shift in focus has seen the country study an import substitution strategy as well as introduce the Egyptian Automotive Industry Development Program that aims to help automakers locally manufacture EVs and other vehicles. On the other side of the equation, Egypt is aiming to increase exports to USD 60 bn a year by 2025 as part of the government’s new structural reform program which would also require increasing products coming out of the country.

There are two pillars being simultaneously implemented — reducing customs + encouraging local component usage: The House of Representatives gave its final approval to a presidential decree amending customs duties (pdf) on hundreds of imports in early June as the country changes policies in efforts to make local manufacturing more viable. The Madbouly cabinet also introduced additional customs reductions for manufacturers based on their percentage of local components.

The reductions in customs seem to reflect the government’s targets in the coming period. Priority areas that the government has been working on are getting a leg up with the custom reductions. These include:

Auto: Before the amendments, tariffs on automotives and their components ranged from 5-40% based on the component type. However, now the sector will pay a unified 2% import tariff on necessary components and equipment such as those to operate electric vehicle charging stations and natural gas-powered vehicle fueling stations, as well as on electric motors, batteries, control units, and ventilation systems used in electric buses. Meanwhile, natgas-powered cars will see 2% in tariffs compared to a previous 30%.

Renewables: Solar and wind components will be subject to a 2% import tariff as opposed to the previous 10% duty that was imposed before the amendments.

Transportation: A wider range of transportation industries will also need to pay the 2% rate on equipment and parts for railways, tractors, ships, aircrafts.

Metals: Raw materials such as iron, manganese, copper, aluminum, and lead ores will now see a 5% custom tariff compared to 10% previously.

Cement and coal: Meanwhile, production inputs for the cement industry are now subject to 0-5% in customs instead of 10%. Coal, an all important energy source for the sector, will see tariffs falling to 2% from 5% currently.

Agricultural inputs: A 2% import tariff will be imposed on fertilizers and seeds, compared to 5% previously.

And if you use local components, you’ll get an additional reduction on customs: The government outlined a tiered system based on the percentage of local components used to manufacture the complete product. The discounts will be available for all sectors of the economy, from electronics to automotives, Finance Ministry Advisor Magdy Abdelaziz told Enterprise.

The formula: The government has set a reduction rate for every tier of the amount of local components used. Multiplying the local component percentage and the reduction rate would give you the overall custom break percentage. For example, if your local component percentage is 50%, and your reduction rate is 120% of the local component percentage. You’d then multiply (0.5 x 1.2) to get 60%. That 60% is then taken off the overall customs you need to pay for a component imported from abroad. So if your import tariffs are EGP 5 on a component, you’d only end up paying EGP 2.

The breakdown for the local component-based customs breaks:

  • If the percentage of local components used is between 10-20%, the reduction rate will be 105%. Total customs for imported components would be reduced 10.5-21%.
  • If the local component percentage is between 20-30%, the reduction rate will be 110%. Total customs for imported components would be reduced 22-33%.
  • If the percentage is between 30-40%, the reduction rate will be 115%. Total customs for imported components would be reduced 34.5-46%.
  • If the percentage is between 40-60%, the reduction rate will be 120%. Total customs for imported components would be reduced 48-72%.
  • If the percentage of local components used is more than 60%, the reduction rate is 130%. The discounts would start from 78% with a maximum ceiling of 90%.

The amendments have garnered a thumbs up from the people we talked to: The new customs tariffs will reduce prices by lowering costs for manufacturers on their inputs and machinery, said Matta Bishai, the head of the Internal Trade Committee of the Importers Division of the Federation of Chambers of Commerce. This will also support their ability to export abroad as pricing will be more competitive, he added.

And could also support more investment: The customs amendments could also pave the way for increased local and foreign investment in Egypt, Ahmed Abdel Wahed, head of the Customs Division at the Federation of Egyptian Chambers of Commerce. Foreign companies may be more incentivized to set up factories in Egypt considering the reduced cost of production, Abdel Wahed added.

Your top industrial development stories for the week:

  • A new car assembly factory: Egyptian International Motors, the Suez Canal Economic Zone, the Sovereign Fund of Egypt and the East Port Said Development Company signed an MoU to explore building a factory capable of producing 75k cars a year.
  • Investment roadshow continues: Finance Minister Mohamed Maait has invited South Korean companies to invest in our agriculture, industry, transportation, energy, and water sectors.
  • Pfizer will provide Egypt with the technology to produce vaccines that prevent pneumococcal infections.
  • Gamea talks RIZ: Trade and Industry Minister Nevine Gamea discussed updates on the planned Russian Industrial Zone (RIZ) with Russian counterpart Denis Manturov during her participation in SPIEF.

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