The auto market finds itself at a crossroads: With the continued import restrictions on vehicles that hit the sector, foreign companies are increasingly looking towards local manufacturing operations, officials and industry players told EnterpriseAM. We spoke to industry insiders to find out what are the hurdles standing in the way of automakers looking to set up their auto production lines here in Egypt and the solutions to them.

After years of decline, auto sales have recently been on the up: Auto sales rose 15.8% y-o-y in the first eight months of 2024 to reach 59.3k units, up from 51.1k units in the same period last year. This rise was driven by an increase in the sales of locally-assembled vehicles, while imported vehicle sales contracted due to insufficient supply and increasingly expensive prices, we were told.

But recent data shows that auto sales may be set to fall again: Auto sales in Augustdropped 12% m-o-m to record 10k vehicles, down from 11.4k in July. This marks the first fall in total vehicle sales after four consecutive months of monthly increases following a 43% m-o-m drop in March that saw the sale of just 4.2k vehicles — the lowest number of auto sales we’ve seen since we started keeping track in January 2019. The market remains volatile as the number of available vehicles continues to decline, driving "crazy price increases" in both the new and used car markets, head of the Federation of Chambers of Commerce's auto division Nour Darwish told EnterpriseAM. Hatla2ee CEO Samy Swellam similarly told us how “ongoing halt in imports, difficulties in accessing foreign currency for import transactions, and global economic crises have further driven up international car prices.”

Some in the industry see auto sales falling even further by the end of the year: Khaled Saad, head of the Association of Automobile Manufacturers, told EnterpriseAM that the market could close 2024 with a 10-15% decline in sales due to recent restrictions, including a tighter process for disabled people vehicle imports, extended restrictions on car imports, and linking allowed import quotas for vehicle importers to their FX availability.

The solution to reviving the car market can partly be found by localizing auto manufacturing: Market players see foreign companies and their agents pivoting to local manufacturing to circumvent import restrictions and access incentives and support from the government’s Egyptian Automotive Industry Development Program (AIDP) that was launched in 2022. The AIDP aims to support localizing the auto industry by offering incentives to auto players and feeder industries to enhance the country’s existing assembly and manufacturing capabilities — and of encouraging new investment to the sector.

**We dove into the government’s efforts to localize the auto industry in an Inside Industry published last month. Read the story here.

2025 could mark a turning point: Government sources tell EnterpriseAM that efforts to develop the sector are beginning to bear fruit, with 2025 set to see several local brands launch with the Made in Egypt certification. The government is in talks with five foreign companies to inject local investments and establish factories, including General Motors with its partner Mansour Automotive, Nissan, Proton, and several Chinese automakers.

Big target for locally assembled auto exports: The auto sector has set its sights on USD 1.5 bn in annual exports for locally assembled vehicles, sources told EnterpriseAM. The goal reflects the effects of revised incentives, such as new localization benefits and updated customs exemptions. Among adjustments being considered by foreign automakers are timing changes for collecting payments from local agents, which would now occur with final vehicle production rather than upon importing components, boosting liquidity to speed up manufacturing. Additional incentives tied to available, ready-for-development industrial lands are also under review.

When will the locally assembled vehicles hit the market? Saad tells us that companies planning local manufacturing need 6-12 months before commercial production can begin. In the meantime, some companies are pursuing third-party manufacturing arrangements to accelerate market entry. Kasrawy has completed preparations for Jetour assembly using third-party production lines, while Nissan has submitted a request to the Industrial Development Authority to increase its production quota. Proton is also making moves, beginning Saga assembly at Ezz El Arab production lines with an initial capacity of 5k units, according to sources who spoke to EnterpriseAM.

The Africa gateway strategy: Sources told us that discussions aren't limited to local export, but include using Egypt as an entry point to Africa through various trade agreements the country has signed to boost exports to the continent.

New investments ahead: Egyptian International Motors has earmarked USD 100 mn to boost local production, with an eye toward exports as it expands its manufacturing footprint, one source told us.

Supply chain bottlenecks are standing in the way of the localization push: Locally assembled vehicles have been unable to ramp up production and meet local market demand partly because of import shortages of components from foreign parent companies, Saad told EnterpriseAM. These annual supply agreements — typically set each December — determine the following year's component imports. Companies are now preparing their 2025 import studies with higher quantities than 2024, which started amid the FX crisis before March's monetary overhaul, which saw the CBE floating the EGP and effectively getting rid of the parallel market.

Regulatory hurdles also persist: Federation of Chambers’ auto division member, Montasser Zeitoun told EnterpriseAM that tax and customs barriers continue to impact the sector, with a 7% fee imposed on auto components while European and Turkish vehicles enjoy zero tariffs under EU partnership and Agadir agreements. He called for tax and customs exemptions to boost local product competitiveness, particularly for export-oriented manufacturing.

Energy is another issue: Several sources told us that gas shortages and rising energy costs are creating operational challenges for auto plants, noting that furnace operations are now sporadically affected by insufficient gas supplies. As energy demands grow, local industry players are calling for competitive energy pricing to attract European automakers looking to expand their production bases, positioning Egypt as a viable manufacturing hub for the industry.

More and simpler incentives needed for the localization trend: Investment Minister Hassan El Khatib'smeeting with auto agents earlier this month reflects the government's commitment to advancing local manufacturing, according to Zeitoun. However, he argued that the sector needs transparent incentives and clear component exemptions rather than the current system of customs discounts based on local manufacturing percentages.

Your top industrial development stories for the week:

  • New armored and fire-resistant door factory in the works: The Industry Ministry is partnering with Saudi Arabia’s Iron Technology Factory to establish a plant for producing armored and fire-resistant doors and related accessories, according to a ministry statement. The ministry will facilitate the project’s implementation by helping speed up the industrial licensing process and providing overall support.
  • Schneider Electric plans to expand Badr City factory: Electrical equipment manufacturer Schneider Electric is planning on investing some EUR 1.5 mn to develop its production facilities — a portion of which will go into expanding one of its plants in Badr City, regional cluster president Sebastien Riez told Al Borsa. The expansion of the plant is set to be completed by October 2025, Riez said.
  • Smith Troy to establish Egypt’s first reinforced corrugated roof factory: Smith Troy for Chemical Industries is set to invest some USD 5 mn to establish Egypt's first specialized factory for producing corrugated roofs reinforced with concrete. The first production line is expected to begin operations by the end of this year, with an annual production capacity of 6 mn sqm of arch roofs — a figure the firm looks to double when the second production line becomes operational. (Al Borsa)
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