LATEST ECONOMIC BRIEFINGS
EMIRATES: DUBAI | 30.07.2010
Dubai’s capital markets appear to be in for significant change with plans unveiled to establish a second-tier stock exchange coming hot on the heels of Dubai Financial Market (DFM) – the government-administered domestic bourse – and the DIFC-based NASDAQ Dubai’s move to formally link their trading platforms. All of this is happening as speculation of a merger between the bourses of Dubai and Abu Dhabi mounts.
ALGERIE | 30.07.2010
Les efforts importants déployés par l’Algérie pour augmenter la production céréalière commencent à porter leurs fruits, dans la mesure où les récoltes record de l’année dernière et les rendements importants de 2010 aideront à réduire les coûts d’importation et à créer des emplois sûrs dans les zones rurales. Cependant, l’objectif de l’autonomie alimentaire fixé par le pays reste encore bien éloigné.
SENEGAL | 30.07.2010
Le Sénégal est en train de devenir un leader en matière de développement de l’énergie solaire comme énergie de l’avenir, et ce, à la fois à l’échelle nationale et continentale. Pour y parvenir, le pays veut augmenter l’utilisation des énergies renouvelables afin de surmonter ses propres manques et promouvoir un grand programme international ayant pour but de mettre fin à la dépendance de l’Afrique de l’Ouest à l’égard des combustibles fossiles.
BULGARIA | 30.07.2010
Though Bulgaria’s economy is likely to remain in the slow lane for the rest of this year, the country’s banking sector continues to show resilience in the face of global economic contraction. There are concerns, however, that increasing levels of bad loans carried by some lenders could add to pressures on the sector.
OMAN | 28.07.2010
A raft of new agreements recently signed by the Ministry of Transport and Communications will see a significant round of investment in Oman’s transport infrastructure. The 15 agreements, signed earlier in July, cover projects in land, sea and air infrastructure and are worth a total of OR136.9m ($355.9m).
COUNTRY COVERAGE
Bitter Sweet
Egypt, Volume 148
27.06.2006
27.06.2006
In 2005 and 2006, Egypt's automotive industry saw a substantial increase in car sales. Observers are watching the country as it enjoys significant growth potential and speculate whether activity in the automobile sector will experience a further increase.
"Volumes went from around 45,000 in 2004 to 90,000 in 2005," Don Butler, chairman and managing director of General Motors Egypt told OBG. "For 2006, we expect to see volumes across the industry reach 95,000 to 97,000."
The reason for the jump in car sales last year, along with the anticipated increase over the course of 2006, is attributed to pent up demand. The recovery of the Egyptian pound in late 2004, following its floatation the previous year, along with a concomitant increase in business and consumer confidence played a significant role in the jump in sales.
So too was the 2004 reduction in the level of import duties for vehicle parts and cars, with those for the 1.6 litre class and below reduced by more than half, resulting in a marked reduction in car prices. When the government announced in January 2005 that there would be no further cut in duties, sales levels picked up as buyers realised that car prices would not go any lower. A reduction in income taxes under the government of Prime Minister Ahmed Nazif is also likely to help encourage consumers to spend.
However, the automotive industry does face its own set of challenges. Car production, for one, is not considered to be cheap in Egypt. This is due to the high cost of local components, combined with the expense of shipping imported parts into Egypt. The requirement that Egyptian content constitute no less than 45% of locally assembled cars is regarded as another obstacle for would-be investors, particularly with regards to flexibility of production and assembly.
"Car manufacturers, such as our own, also face a problem because the quality of local content tends to be low," Raafat Masrouga, general manager for trading of Toyota in Egypt told OBG.
However, this is not to deny that the quality of local components has significantly increased over the last 10 years and will continue to do so.
There are also ways to overcoming such obstacles. Mercedes-Benz is pushing ahead with plans to build its top-of-the-line S500L in Egypt by the end of 2006 - an indication that a large number of foreign big brand manufacturers have been far from discouraged in expanding their in-country activities with local partners. Allowing carmakers to compensate for a shortfall in local content with exports has provided some flexibility to Mercedes-Benz's parent company DaimlerChrysler.
"I believe [some German car manufacturers] have now reserved a percentage of their production for offset. They are also looking for local producers [of car parts] to have joint ventures with the company in Germany," said Masrouga.
This of course does not remove industry-wide concern about the gradual removal of tariff-barriers on imported cars. Cutting tariff barriers on imported automobiles from Europe by 10% every year under the Euro-Mediterranean Free Trade Agreement has caused understandable discomfort amongst local car assembly workers.
"By 2019 - when all tariffs on imported vehicles are to be eliminated - we are unlikely to see cars being assembled locally," Masrouga said. "European carmakers will be the main winners."
What this implies for local car manufacturers is clear. "We will have to become more competitive and have to become leaner in terms of cost structures," said Butler.
Indeed, General Motors is already working with its suppliers to raise standards before a tide of car imports hits the market in the years to come.
The country is the largest car producer in North Africa, employing more than 62,000 workers, according to the General Authority for Investment and Free Zones (GAFI).
Local manufacturers continue to point to the potential of the Egyptian market. The market size, the equivalent of $2.39bn in 2003, in relation to a population of over 70m may be small, but in terms of growth prospects Egypt finds itself in a strong position. Some analysts believe that foreign car producers may be forced to eventually abandon their Egyptian assembly plans, finding it more economical to import ready-assembled vehicles into the country from abroad when tariffs are completely removed.
In the meantime, Egypt's consumers will benefit from greater competition between foreign and locally based automotive firms, though with less certainty as to how many jobs will be available in the industry in the next decade.
"Volumes went from around 45,000 in 2004 to 90,000 in 2005," Don Butler, chairman and managing director of General Motors Egypt told OBG. "For 2006, we expect to see volumes across the industry reach 95,000 to 97,000."
The reason for the jump in car sales last year, along with the anticipated increase over the course of 2006, is attributed to pent up demand. The recovery of the Egyptian pound in late 2004, following its floatation the previous year, along with a concomitant increase in business and consumer confidence played a significant role in the jump in sales.
So too was the 2004 reduction in the level of import duties for vehicle parts and cars, with those for the 1.6 litre class and below reduced by more than half, resulting in a marked reduction in car prices. When the government announced in January 2005 that there would be no further cut in duties, sales levels picked up as buyers realised that car prices would not go any lower. A reduction in income taxes under the government of Prime Minister Ahmed Nazif is also likely to help encourage consumers to spend.
However, the automotive industry does face its own set of challenges. Car production, for one, is not considered to be cheap in Egypt. This is due to the high cost of local components, combined with the expense of shipping imported parts into Egypt. The requirement that Egyptian content constitute no less than 45% of locally assembled cars is regarded as another obstacle for would-be investors, particularly with regards to flexibility of production and assembly.
"Car manufacturers, such as our own, also face a problem because the quality of local content tends to be low," Raafat Masrouga, general manager for trading of Toyota in Egypt told OBG.
However, this is not to deny that the quality of local components has significantly increased over the last 10 years and will continue to do so.
There are also ways to overcoming such obstacles. Mercedes-Benz is pushing ahead with plans to build its top-of-the-line S500L in Egypt by the end of 2006 - an indication that a large number of foreign big brand manufacturers have been far from discouraged in expanding their in-country activities with local partners. Allowing carmakers to compensate for a shortfall in local content with exports has provided some flexibility to Mercedes-Benz's parent company DaimlerChrysler.
"I believe [some German car manufacturers] have now reserved a percentage of their production for offset. They are also looking for local producers [of car parts] to have joint ventures with the company in Germany," said Masrouga.
This of course does not remove industry-wide concern about the gradual removal of tariff-barriers on imported cars. Cutting tariff barriers on imported automobiles from Europe by 10% every year under the Euro-Mediterranean Free Trade Agreement has caused understandable discomfort amongst local car assembly workers.
"By 2019 - when all tariffs on imported vehicles are to be eliminated - we are unlikely to see cars being assembled locally," Masrouga said. "European carmakers will be the main winners."
What this implies for local car manufacturers is clear. "We will have to become more competitive and have to become leaner in terms of cost structures," said Butler.
Indeed, General Motors is already working with its suppliers to raise standards before a tide of car imports hits the market in the years to come.
The country is the largest car producer in North Africa, employing more than 62,000 workers, according to the General Authority for Investment and Free Zones (GAFI).
Local manufacturers continue to point to the potential of the Egyptian market. The market size, the equivalent of $2.39bn in 2003, in relation to a population of over 70m may be small, but in terms of growth prospects Egypt finds itself in a strong position. Some analysts believe that foreign car producers may be forced to eventually abandon their Egyptian assembly plans, finding it more economical to import ready-assembled vehicles into the country from abroad when tariffs are completely removed.
In the meantime, Egypt's consumers will benefit from greater competition between foreign and locally based automotive firms, though with less certainty as to how many jobs will be available in the industry in the next decade.
