Interview: Raouf Ghabbour
To what extent would improved financing boost retail sales for new automobiles?
RAOUF GHABBOUR: Financing options are available through banks, consumer finance companies, microfinance or financial leasing companies. The foremost obstacle to increased sales has been the lack of stability in the country, which translates into employment insecurity. The events that have taken place since 2011 have created an environment of political uncertainty that extends to the sphere of jobs, jeopardising customers’ access to different financing tools. As the political situation stabilises, so will the job market, which will have a positive impact on retail sales.
How will changes in the tariff regime impact the competitiveness of local production?
GHABBOUR: If current regulations are not changed, the local automobile assembly industry will no longer be competitive by 2016. European products currently face a Customs duty of 24% versus just 7% paid by local assemblers; however, in 2015, the duty for foreign products will be reduced to 19% and to 14% in 2016. This is detrimental for local assemblers, as they would face greater competition from foreign products. The major stakeholders in the sector, however, are convinced that the government will take the necessary steps to prevent large multinationals from leaving the country. While the tariff for foreign producers could be further dropped to 10%, sales taxes could be increased, with tax exemptions provided to local producers.
What potential exists to increase production of spare parts and components from within Egypt?
GHABBOUR: The potential is there. However, we still require more support from the government in order to increase production of spare parts and components. A proper regulatory environment that encourages investments is needed. Moreover, exemptions or subsidies should be put in place for manufacturers that reach a level of production that exceeds the demand of the local market. This would boost the exports of spare parts and components, and thus the country’s competitiveness in the region.
What scope is there for improving the incentives on offer for manufacturers in Egypt?
GHABBOUR: Other major manufacturing destinations in Africa have rolled out large-scale incentive programmes, including vocational training assistance and fiscal breaks to auto and component manufacturers. In the case of Egypt, there needs to be a greater push for local manufacturers to export their goods. One way this goal can be accomplished is to mandate a minimum volume, above what can be absorbed by the local market. Alternatively, a certain percentage of the total production could be allocated for exports.
To what extent have labour costs in Egypt been exposed to inflationary pressures?
GHABBOUR: One of the country’s most prominent advantages for industrial investors is the competitive cost of labour. Although it is true that salaries have increased as a result of inflation, it is important to bear in mind the simultaneous devaluation of the currency. This has meant that any salary increases have not had a major impact on the competitive cost of labour. Therefore, inflation has gone hand in hand with devaluation.
How will the positive economic outlook translate into higher numbers for the automotive sector?
GHABBOUR: Growth in the Egyptian economy at the end of 2014 and throughout 2015 will have a positive impact on the automotive market. The passenger car segment, which accounted for 120,000 vehicles in 2012 and 124,000 in 2013, could grow by 20% in 2014, followed by an even greater increase in 2015. Growth should be far more significant for commercial vehicles. Investments in public transport will translate into at least 1000 new public buses on the market. This represents a 50% increase, which has never happened in Egypt.
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