Egypt’s Central Bank policies reduce car imports in 2016

“Cars drain dollars.” This appears to be the operative phrase describing how the Central Bank of Egypt (CBE) views the automotive industry, according to its plan to limit imports of consumer goods.

Car imports increased in 2015, though the state strategy indicates the belief that Egyptian consumers did not benefit from this since the prices went up in the same period. Banking sources said CBE will restrict opening letters of credit to import fully-manufactured cars, while it will continue to provide hard currency to import car parts to be assembled in Egypt.

A senior bank official told Daily News Egypt that banks are moving towards limiting opening letters of credit for fully-manufactured cars, in accordance with CBE’s unpublicised policies. Banks have approved all requests and will provide dollars for importing manufacturing parts for the local assembly of cars.

The source said several letters of credit were postponed for companies seeking to import fully-built cars including GB Auto, Mansour Chevrolet, Toyota Egypt, and Nissan Egypt. Requests made by the same companies to import car parts were approved.

The source explained that the local market assembles sports models and other popular models.”The state should not import goods that can be found in the local market,” the source said. He said CBE’s policies do not suit traders, whereby CBE aims to support domestic industry and provide $20bn in the current year.

The source said these policies will lead prices of imported models to increase, since some models will disappear from the market. However prices of locally assembled models will decline.

The source pointed out that the market has seen an unjustified increase in prices last year, where about $3bn worth of cars were imported, a 45% increase from 2014.

GB Auto acquired 30% of total applications for opening letters of credit in 2015, which contradicts its claims it halted its operations due to CBE policies. “GB Auto moved prices up to make profit,” the source said.

Director of the Corporate Finance at GB Auto Menna Sadek said the limit on opening letters of credit will make business harder since it will breach the free trade agreements signed by the state. She denied that GB Auto faced any challenges to import manufacturing requirements or car parts, and confirmed that the company can meet the needs of the market.

She explained that GB Auto has enough dollars to cover its for import needs since the company exports cars and tuk-tuks to Iraq, Algeria, and Libya.

Sadek said the company already has a policy to increase production and export to overcome the dollar shortage crisis. About 50% of GB Auto’s sales are of domestic production, whereby the company domestically assembles the Geely Emgrand 7, Hyundai Verna and Elantra HD, and Chery models, including the Tiggo and Envy. She described the number of the company’s letters of credit as inaccurate.

Marketing Director of General Motors (GM) Egypt Heba Barakat told Daily News Egypt that GM has not faced any challenges importing car parts for local assembly, and that Mansour Chevrolet is the company responsible for the import of fully-built cars. She said the company supports its dollar liquidity through exporting to foreign markets.

Mansour Chevrolet General Manager Adel Khedr said his company has not faced any problems recently in importing cars and the company is working to meet the needs of the local market for Chevrolet and Opel models.

A source at Mercedes-Benz Egypt however told Daily News Egypt that the company is facing a crisis in the provision of dollar liquidity for imports. “The state is facing a crisis in dollar provision, not only the automotive sector,” the source said.

The Automotive Marketing Information Council (AMIC) reviewed car sales of assembled and imported models since 2009, the year the EU-Egypt Association Agreement came into force to reduce customs tariffs on models imported from Europe gradually, to reach 0% in 2019.

The report said the years 2014 and 2015 witnessed a boost in sales of imported cars, especially in 2015, when sales of imported models increased by 2.2% from the 2014’s sales increase of 43.1% to record sales of 148,300 cars. However in 2013, the market declined by 7.7%, with only 103,600 cars sold. In the previous year in 2012, sales of imported models increased by 19% compared to 2011, selling about 112,300 cars.

The highest drop of imported car sales took place in 2011, dropping from 132,000 cars in 2010 to 94,400 cars in 2011, a decline of 28.6%.

According to AMIC’s report, sales of assembled models declined by 26.36% in 2010, recording sales of 116,600 cars compared to 92,300 cars in 2009. The year 2011 also saw a severe decline of 29.9% with about 81,700 cars sold only. Sales improved slightly in 2012, increased by 7.5%, and about 87,800 cars were sold. Recovery continued in 2013, boosting a growth of 4.8% and sale of 92,100 cars. Sales of assembled models went through the roof in 2014, increasing by 56.8% achieving sales of 144,600 cars.

AMIC has yet to complete the estimates of sales achieved in 2015, but so far it expects them to fall by 11.69%, led by the imposed guideline prices and the difficulty of obtaining hard currency liquidity for import operations.

Minister of Foreign Trade and Industry Tarek Qabil approved a list of 50 commodities banned from importing before registering the name of the production factory at the records of General Organisation for Exports and Imports Control (GOEIC) to limit imports of poor quality goods.

The list included textiles, furnishings, carpets, blankets, shoes, steel, garments, bikes, motorbikes, home appliances, watches, mineral and natural waters, and soda. The decision also included provision of copy of the issued licence of the production factory, certificate of legal status, and the trademark of the product, and the trademark produced according to a licence from the owner themselves.

The organisation will receive a certificate to prove that the factory has the quality control system issued by recognised body of International Laboratory Accreditation Cooperation (ILAC) and endorsement from the factory, after undergoing inspection by the technical team to ensure that environmental and the labour standards are met, as well as to prevent trade between merchants and restrict imports from registered factories.

Source: Daily News Egypt