How the private sector + AOI are working to develop Egypt’s tire manufacturing industry: Last week, we took a deep-dive into our troubled tire industry, whose problems have been exacerbated by the FX crunch and import restrictions. With Egypt’s heavy reliance on imported tires, a shortage of domestic manufacturing of tires and the recent 300% surge in tire prices impacted both consumers and businesses alike. This week, we delve into the different measures and initiatives to address the scarcity by developing the domestic tire industry. The Arab Organization for Industrialization (AOI) and several private companies are ready to step in and strengthen the tire industry by prioritizing domestic productions, industry insiders tell us.

REFRESHER- Egypt consumed around 10 mn tires in FY2022, of which only 15% (1.5 mn) tires were produced domestically, with the remainder coming from imports. At present, Pirelli and Pyramid Tires stand as the only tire manufacturers in Egypt, covering around 8.2% of domestic demand, after domestic tire manufacturer Trenco — which previously covered 30% of the internal market — shut down operations last year.

One step closer towards localizing the tires industry: The AOI inked an agreement last November with Hill International to set up a facility to manufacture tires for passenger cars, trucks, buses, tractors, and heavy equipment. It also agreed with Black Donuts and Roland Berger to work on separate feasibility studies to establish other tire factories, Black Donuts CEO Kai Hauvala told Enterprise.

CAVEAT- There’s a lot we don’t know: Figures regarding outputs and how much of domestic consumption each of these facilities will cover have not been disclosed. There were also no details provided on the timelines for these projects.

Ramping up domestic tire manufacturing would help our trade balance: These projects are a stride towards opening new export markets, which will “positively reflect on the provision of foreign currency and the promotion of the Egyptian economy,” AOI head Mokhtar Abdel Latif said. They also demonstrate progress towards expanding Egypt’s exports and reducing dependency on imports, he said, and would also help narrow our current account deficit by reducing imports, which recently narrowed by 20% to USD 3.2 bn in 1Q2022-23.

… And help us part ways with logistics costs: Replacing imported tires with homegrown ones would eliminate high logistical costs involved by transitioning to domestic logistics, canceling out impacts of supply chain breakdowns, Black Donut’s sales representative, Ahmed Abou El Nasr told us.

Deepening the tire industry has been on the government’s radar for while: The feasibilitystudies prepared fall in line with the joint vision between the Public Enterprises Ministry, Military Production Ministry, and the AOI to “deepen this industry locally in accordance with international quality standards,” former Public Enterprises Minister Hisham Tawfik previously said.

And localizing manufacturing to reduce our reliance on imports — and boost exports — is a major policy priority:In light of global market conditions and the war in Ukraine, import substitution and growing domestic manufacturing are now at the forefront of the Madbouly government's priority list. The government has as an objective to boost exports to reach USD 100 bn by the middle of the decade to slash the country’s trade deficit and reduce consumers’ vulnerability to import prices.

The move to deepen the domestic tire industry comes as the government works to launch the Automotive Industry Development Program (AIDP), which through certain incentives strives to localize production in the automotive industry as a whole. The program — which has been years in the making — aims to boost the country’s existing assembly and manufacturing capabilities while also drawing in new avenues for investment. The localization of the automotive industry includes the manufacturing of automotive components such as tires.

The good news: Egypt has the potential. Egypt is definitely a potential tire-manufacturing hub, due to the numerous cost advantages it holds, Hauvala told Enterprise. Cost-wise, reasonably low labor and land costs make it a very attractive location for foreign investment. The growing population also makes the market increasingly appealing for investments — in an automobile-dependent country, the demand for tires grows in proportion to the growing population, he added. These factors make Egypt an interesting prospective market for investment, and there are currently a handful of serious private sector players eyeing the industry, he said, without disclosing the names of these companies.

There’s still room for more companies to get involved, but there are hurdles in the Egyptian market that are holding back investments, Abou El Nasr told us. The lack of know-how in the Egyptian industry and the high cost of capital investment stand as significant barriers to entry for players eyeing the market, Nasr stated. The lack of raw materials available domestically increases our dependence on imported components, which when coupled with the USD crunch makes tire production extremely costly, he added.

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