Abstract
The Egyptian automotive market will not escape the effects of the global
economic downturn. However,
in this, the latest Egypt Automotive Report,
BMI forecasts a speedy recovery with the liberalisation in
autos parts
imports ensuring that local carmakers can make the most of the upturn.
Following a period of high and sustained growth rates, the market is set for a
short period of moderation
in sales as the economic outlook worsens. In
2008, BMI estimates that autos sales grew 15.7% to 266,188
units, with
passenger car sales up 15.5% and commercial vehicle sales up 16.5%. As the
year progressed,
overall sales growth diminished, leading to a more or
less stagnant market by year-end. This resulted in
some temporary plant
closures.
In the light of the economic slowdown, sales forecasts for 2009
range from anything up to a 20% decline.
BMI believes that Egypt will
continue to grow in real terms, but at a much slower pace than over the
last
few years. Government measures, and the relatively small degree of
financial sector risk, will mitigate the
damage of the global crisis. In
terms of the effects of a more restrictive credit market, the market will
fare
better than most with less than half of all cars bought on credit in
2008 compared with 70-80% in the Gulf
Cooperation Council (GCC).
Additionally, Egyptian banks are not over-leveraged like those of more
developed nations; this means that they are in a better position to lend. As a
result, BMI forecasts a 5.4%
decline in the market in 2009, a revision
from the 1.1% growth we forecast in our previous report. We
expect a
recovery from H210, with full-year sales growth of 3.6% and a return to high
levels of
progression from 2011. By 2013, autos sales should reach 638,000
units, an increase of over 90%
compared with 2008 levels.
On the
upside, changes in the external trade tariff structure could mitigate the
problems facing local
operations. On January 8, the government announced
extensive measures to boost the industry with the
elimination of a 2%
export tax on Egyptian-made cars and exemption of component parts from
import
tax. It is also looking at the possibility of reducing or
cancelling sales tax on cars. This should help
support the business by
reducing the cost of production, improving quality and, if the sales tax is
changed,
stimulating domestic demand.
While the decline in the
domestic market will inevitably affect production this year, over the medium
to
long term, the industry will perform strongly. Access to cheaper and
better quality parts will enable
producers to export to developing
markets, which is a hedge against volatility on the domestic market.
BMI’s forecast fall of 5% in the year will represent a temporary blip in
an otherwise optimistic outlook.
By 2013, output should be around 100,000
units above that achieved in 2008.
BMI estimates that Egypt’s autos
trade deficit rose by 80% in 2008, to US$4.35bn, due to rapid increases
in
demand. We expect a rise in exports over the forecast period, with a greater
proportion of domestic
output sold abroad. At the same time, imports are
likely to accelerate, with the local manufacturing sector
unable to keep
up with demand. Consequently, the trade deficit is set to reach just under
US$9.0bn at the
end of our forecast period in 2013.
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