The flow of foreign revenues into Egypt's car manufacturing industry got a significant boost lately. Yasmine El-Rashidi reports Nissan Motor Co Ltd announced details of its expanding business operations in Egypt last week, including the buying out of the assets of the existing manufacturing operation in 6th October Industrial city. The announcement was one of several foreign investments in Egypt in recent months, including BMW and LandRover. The second largest car manufacturer in Japan, Nissan Motors, announced plans to invest $60 million in 2004/2005, increasing to $100 million by 2010. The project is a joint-venture with Seoudi Group -- the licensed Nissan agent in Egypt. "This project would not make sense without export efforts," Nissan President and Chief Executive Officer (CEO) Carlos Ghosn said at a press conference last week, explaining the company's plan to turn Egypt into its industrial base for the Middle East and North Africa. Ghosn said the $60 million would be used to renovate, modernise and enlarge Nissan's factory in Egypt which has been producing pickups since 1997. Starting in April next year, the company will assemble the Sunny Sedan in Egypt as well as the X-Trail model. "Factory output is targeted to reach 13,000 units in 2007," he said, "up from the 1,803 figure for 2003." Currently, the only locally- assembled model is the pick-up. The popular Sunny sedan is imported from Japan. Long-term plans include introducing new models, both locally built and imported, into the Egyptian market, and using them as a competitive export base for neighbouring markets. "Today we export zero cars. In 2007 our plan is to export 3,800 cars," Ghosn said. Under the expansion plan, Nissan plans to start local assembly of its first passenger vehicle, the Sunny sedan, in Egypt in the summer of 2005. This will be followed by the launch of the locally assembled X-Trail sports utility vehicle under which Ghosn expects to capture 15 per cent of the local Egyptian market by 2007. Nissan, which is set to post its fifth consecutive record earnings this year, plans to sell 4.2 million vehicles a year ending March 2008 under its three-year plan. "There is a potential that is not exploited and we think this is going to be a good opportunity to try to crack, once and for all, resistance to exports from Egypt," Ghosn said. Egypt's exports have become more competitive in world markets after it floated the pound in January 2003. The pound's subsequent devaluation enhanced the country's appeal as a production base for export. While exports have been critiqued as not reaching potential targets due to substandard quality, the most recent foreign entrants to the local manufacturing arena have asserted an unwavering commitment to propelling the local manufacturing scene to unprecedented standards to meet global criteria and demand. The Nissan investment is the second such large-scale plan in the past six months. Late last year, BMW and its new importer and licensed dealer, Bavaria Auto Group, announced a similar re- haul of the company's Egyptian presence. Since then, the company has spent $60,000 on the local plant and in March inaugurated the first line of locally- manufactured cars. The "mini" was also launched on the market last year. The plant, which has a production capacity of 4,000 units per year, has been described by BMW Group's Senior Vice President Lueder Paysen as having "utmost strategical importance". Like Nissan, it is expected to feed neighbouring markets as well. "In the past our maximum market absorption was 1,600 vehicles per year," Helmut Broeker, director of Africa and Caribbean BMW Group, told Al-Ahram Weekly. "We hope this time to use the maximum factory capacity. Initially we expect 1,500 vehicles to be sold on the local market, but Egypt is a strategic market for COMESA and neighbouring countries, and we hope to use our factory in Egypt to sell to those countries, too." In fact, the intention to use Egypt as an export base to COMESA and neighbouring countries will perhaps be the prime revenue source for the likes of BMW and Nissan. During the last 18 months, since Prime Minister Atef Ebeid announced the floatation of the pound, the dollar has strengthened 25 per cent to the pound. The automobile market has suffered severely given skyrocketing prices -- BMW's latest models were selling at LE100,000 more than two years ago. Though slightly more tender, Nissan prices too stand shockingly high relative to the local economy. The imported Sunny sedan currently sells for over LE90,000. Fittingly, last official figures show that new car ownership fell from 85,000 in 2000 to 55,000 in 2002. Car ownership in Egypt is estimated at around 22 per 1,000 people, compared to 35 per 1,000 in Iran and more than 100 per 1,000 in Saudi Arabia. Given these figures, the pace of foreign manufacturing in the local market has been brought to question. Local dealers lament that business has plummeted in the past year. "People don't have the purchasing power they used to," Hisham Sweify of Sweify Cars told the Weekly. "Prices have soared, the cost of living on every level has increased and people are not earning more. So how are they going to buy? Before, buying on instalments was popular but people are weary now because you look around you, at the country and people, and you don't know if you'll be the next to be laid-off. The government is not helping the situation." In an effort to increase state revenues and contain a fast-swelling budget deficit that now stands at LE52.5 billion, the government last month passed three pieces of legislation, adding taxation on a number of services and products. The car industry was hard hit -- a development tax ranging between three to 8.5 per cent was imposed on locally manufactured goods, imported cars inclusive. Counselor to the minister of finance, Abdel- Fattah El-Gebali, announced that the three per cent development tax would be imposed on locally manufactured cars ranging from 1000cc to 1600cc, five per cent on cars from 1600cc to 2000cc, and 8.5 per cent on cars above 2000cc. The announcements have infuriated local car dealers who say the market will be badly affected. "What we really fear is that if car costs increase, sales will most probably drop. This can have a negative impact not only on the industry but also on related feed industries with investments estimated at LE2 billion," Salah El-Hadari, head of the Vehicle Manufacturers Association (VMA) -- affiliated with the Federation of Egyptian Industries -- told the Weekly. El-Hadari noted that sales in 2003 were estimated at 52,000 vehicles, 32,500 of which were locally manufactured. "This is not a huge market particularly if we consider that local factories are working with only 30 per cent of their total capacity. Any further drop in sales will definitely destroy the industry," El-Hadari said. Market surveys show that vehicles less than 1000cc, which according to the latest legislation are tax exempt, constitute only two per cent of the total market while at least 86 per cent of locally manufactured vehicles fall within the 1000cc to 1600cc range. The remaining vehicles are exports. For the likes of Sweify, the impact of taxes may be crippling -- locally manufactured vehicles are already overburdened with sales taxes and custom fees on imported intermediate materials. In fact, 40 per cent of the total price of a locally manufactured car comes from taxes and custom fees. Imported cars face custom fees and sales taxes amounting to 70 per cent of total price for cars in the 1000cc to 1600cc range. Cars above that capacity are charged with a 135 per cent customs fee and 45 per cent sales tax. "You could have bought a good car for LE40,000 two years ago," Sweify says. "Today, that same car costs about LE70,000 or LE80,000. And things are getting worse." But it is perhaps only local dealers that are hard-hit by the unyielding prices which have curbed purchases. The nation's financial woes may not rattle the buyers of BMW which in Egypt costs between LE250,000 and LE1 million. The customers of the German luxury car form an elite class of their own. "Customers wanting BMWs or Mercedes' go straight to the source," Sweify says. "For someone like me, I deal with a different type of buyer. My clients can't afford a BMW. For them, LE10,000 or LE15,000 makes a big difference. They have to stop and think." On that level, critics say the Nissan sedan may create a niche of its own, offering a luxury car but at a much more affordable price. But it appears that Egypt will remain, for now, just a strategic location, the ideal spot to service the region, regardless of the locals' power to purchase.
