Producing and selling locally made passenger cars has been the proverbial feather in the cap of Egypt’s successive governments since the late 1950s. “Every country in the world longs for a car industry,” Adel Gazarine, then chairman of the Egyptian Businessmen Society, said in a documentary on Egypt’s first locally manufactured car, the Ramses. “It gives prestige to the country. It’s said that any … country longs for three things: to set up embassies, to have a flag, and to establish a car industry.”
The first decade of the 21st century saw a surge in local auto assembly investment, with Jeep, BMW and Mercedes-Benz leading the way. At the time, Egypt was a globally recognized auto investment destination: The Mercedes-Benz local facility was its third outside the EU (after the United States and China). Egypt was also one of four countries outside Germany that hosted a BMW factory.
As of 2024, 15 auto manufacturers assemble passenger and commercial vehicles locally, sourcing at least 45% of their components from domestic suppliers. AmCham Egypt’s Industry Insight report said locally made cars accounted for over 60% of sales in Egypt last year.
The government wants to grow the industry further. The first target is to increase the percentage of local components. “We are looking to offer incentives for local carmakers that increase the local components percentage beyond 45%,” said Prime Minister Mostafa Madbouly in May.
The second goal is to increase exports, which reached nearly $6 million in 2023, down from an all-time high of $48.8 million in 2013, according to Trend Economy, a data aggregator. That would be vital to offset the nearly $2 billion Egypt paid to import cars last year.
Why cars?
Aside from the prestige of being one of 47 nations (out of 195 recognized countries) with car industries, the sector has significant macroeconomic benefits, according to a 2023 research paper titled “The Automotive Industry Cluster in Egypt,” published by the German University in Cairo (GUC).
“The sector promotes innovation and [attracts] billions in investments,” the report said. It is “dubbed the ‘industry of industries’ because it is so closely linked to 20th-century industrial progress and mass production and consumption.”
Research by Kocaeli University in Turkey said auto producers, feeders, and support industries “contribute significant tax revenues from vehicle sales, usage-related levies, personal income taxes and business taxes. Production and sales of new and used vehicles, parts and services deliver excise, sales, value-added and local taxes, and import duties.”
MedCrave, a research company, said that in developing countries like Egypt, auto manufacturing contributes “less than 10%” of the industrial sector. That can go up to 40% in economies with advanced auto industries like Morocco, which is the seventh biggest producer of cars worldwide in 2024, according to Data Panda, a data aggregator.
Additionally, the sector’s exports are “more high-tech products and less raw materials,” the MedCrave report said. That generates high profit margins, fuels local R&D spending and innovation, and advances worker skills and education.
Catch-up strategy
In 2022, the government announced the Automotive Industry Development Strategy. Its mandate is to “establish [Egypt] as a key gateway to the emerging African automotive market,” read the strategy document. It would achieve that by developing a “comprehensive and integrated industrial policy” to tackle the “prevailing global economic conditions and changing context of automotive production.”
To implement this strategy, President Abdel Fattah el-Sisi created the Supreme Council for the Automotive Industry (SCAI) to “approve general policies, plans and strategies necessary for the development of the [local auto] industry … and follow up on its implementation.”
The council also develops the “general framework for legislative and administrative reform of the automotive industry [and] studies appropriate solutions to the obstacles facing the industry and works to conclude agreements and exchange experiences with leading countries.”
Its first decision was to create the “eco-friendly automotive industry support fund” to finance the development of local zero-emission electric vehicles (EV) manufacturing. The fund also finances low-emission vehicles, such as natural gas-powered cars.
In November, the council launched the National Automotive Industry Development Program (AIDP), which offers a tiered incentive program based on the percentage of local components used in locally assembled vehicles. It also contains stimulus for EV producers and feeders. Incentive packages are available to raise awareness (and therefore demand) for locally produced EVs. Those incentives are in addition to those in the 2017 investment law.
Only private-sector auto manufacturers and their feeders producing “passenger cars, SUVs, vans and microbuses” are eligible.
The strategy document also said EV buyers should get “cash incentives [up to] EGP 50,000, … exemption from license tax [and] state resource development fees, as well as obliging real estate developers to provide charging points at a specific rate in residential and commercial projects.”
Also aligning with strategy targets, the government created the Automotive Industry Unit last year. It is responsible for “developing detailed accreditation and qualification guidelines for car manufacturers, [and] creating application forms to join” the development program.”
It also “establishes a detailed information system on local value-added calculation forms for car manufacturers or local component suppliers.” It communicates with investors by sending them “memos and information publications … and answering inquiries.”
Lastly, it “develops controls and mechanisms” for incentives due to manufacturers.
From deals to implementation
Since the AIDP was announced, the government signed agreements with Nissan Egypt, General Motors, and Stellantis Group to “manufacture their cars in the industrial city of Ibaz in east Port Said Governorate. VW will “manufacture automotive paint materials” there, the State Information Service said in November.
The government also announced that Proton would establish a factory in Ein Sokhna’s industrial complex. Ghabbour Auto and Itamco said they will expand operations in Sadat City under AIDP to build 100,000 cars annually. The state also signed four other agreements to build car factories in industrial cities around the Suez area and Greater Cairo.
The government also said it is investing in the state-owned El Nasr Automobiles factory, which will build passenger EVs and zero-emission buses.
However, a July 2023 research paper from the German University in Cairo (GUC) highlighted a critical problem. “Egypt’s education and training institutions … have roadblocked [the local automotive sector’s] global competitiveness,” said research author Menatallah Darrag, a management assistant professor. According to INSEAD University’s Global Talent Competitiveness report, Egypt ranked 88th out of 134 countries worldwide and 15th out of 21 in the MENA region.
The nature of Egypt’s labor problem stands out. “Unemployment rates among educated people … grow as education levels rise,” Darrag said, “showing the inability of the education system to satisfy labor market requirements for credentials and skills, particularly in the private sector.”
Darrag said the solution is to implement a “complete strategy and develop specific and thorough employment policies and programs rather than relying on legislative reform and the relaxation of inflexible labor laws, which are blamed for rising labor costs and unemployment.”
This article first appeared in August’s print edition of Business Monthly.
