Declining Car Market in Egypt Raises Concerns Amidst Economic Challenges

A tough market has seen vehicle sales in Egypt in the first half of 2023 plummet by 69.8 percent compared to the same period last year, according to a report by the Automotive Information Council (AMIC).

The auto market in Egypt saw about 36,845 vehicles sold in the first half of 2023 - a decrease of 69.8 percent compared to 122,318 vehicles sold in the same period last year, according to a report by the Automotive Information Council (AMIC).

The economic downturn, coupled with persistent hard currency shortages, has created a challenging environment for the automotive sector, impacting passenger cars, buses, and trucks alike.

Passenger car sales dropped 71 percent year-on-year from January to the end of June 2023, with 26,869 units sold, AMIC's data showed. Bus sales also suffered a 56 percent YoY decline to 3,982, while truck sales plummeted by 71 percent YoY to 5,994 units.

Osama Abul-Magd, head of the Association of Automobile Dealers in Egypt, attributed the decline to a combination of internal and external factors affecting the local vehicle supply.

He highlighted the energy crisis as one of the external factors disrupting global auto production, in turn affecting vehicle availability in Egypt.

According to a report by S&P Global Mobility, the energy crisis is projected to reduce Europe's car output by nearly 40 percent in 2023.

The study further highlighted that producing a single car requires over 55,000 megajoules of energy, equivalent to almost 1,800 litres of gasoline.

Mahmoud Hammad, Head of the Used Car Sector at the Egyptian Automotive Dealers Association, stressed the importance of addressing the US dollar shortage as the first step in resolving the market's challenges.

Egypt is currently coping with a shortage of US dollar liquidity in the local market and a financing gap estimated at $17 billion through 2026.

Hammad warned that the supply of traded vehicles in the market is rapidly depleting and that the country may soon run out of new vehicles.

He also noted that the only currently viable means to bring new cars into the market is through personal imports facilitated by agencies operating in free zones.

Internally, the Central Bank of Egypt's switch from letters of credit (LCs) to a cash-against-documents system for imports as of December 2022 and legislation limiting the import of used cars have also contributed to the decline in sales.

Under current laws, passenger vehicles may only be imported up to one year after the date of manufacture, severely limiting Egypt's imports of used vehicles. Hammad suggested amending this law to alleviate market pressure.

Changes to Egypt's import rules were exacerbated by the supply chain crisis, which began during the COVID-19 pandemic and worsened due to Russia's invasion of Ukraine in February 2022.

Since then, the Egyptian pound has lost nearly 50 percent of its value. Meanwhile, headline annual inflation reached its all-time high in July 2023 at 38.2 percent.

Challenges in perspective Hisham El-Zeiny, Editor-in-Chief at Al-Ahram Auto, acknowledged current challenges but urged a contextual view of the country's economic situation.

"The Egyptian market isn't a huge market," said El-Zeiny. "It peaked in 2010 with the sale of 298,000 passenger cars. In 2022, the number of passenger cars reached 137,302, which doesn't reflect a significant decline in sales."

Some Egyptians have still been able to personally import vehicles through US dollar bank deposits, explained El-Zeiny.

However, the decline in purchasing power among Egyptians has shifted priorities away from car ownership. El-Zeiny highlighted that "the decline in Egyptians' purchasing power has made cars not a priority for many."

Currently, only 6.7 percent of Egyptians own cars, according to spending and income research conducted in 2019/2020 by the Central Agency for Public Mobilization and Statistics (CAPMAS).

The number of licensed vehicles in Egypt reached 9.9 million at the end of 2022, including 5.1 million passenger cars.

Egyptianizing production Egypt has taken several steps to develop the local automotive industry to keep up with regional players.

In June 2022, the country launched a national strategy for localizing the automotive industry. The strategy aims to establish Egypt as a main gateway for emerging vehicle markets in Africa and to build strong commercial and investment relations with regional trade partners to ensure sustainable development growth for all sides.

The strategy also includes the Egyptian Automotive Industry Development Program (AIDP), intended to develop existing assembling and manufacturing capacities and encourage new investments in this sector.

Last October, the Egyptian House of Representatives approved a draft law for the formation of the Supreme Council for Automotive Industry and the establishment of the Environment-Friendly Automotive Industry Fund.