After many discussions with the Egyptian government, major German car producer Mercedes-Benz announced Jan. 18 that it will establish a new assembly plant in Egypt. The resumption of operations follows an almost four-year absence from the Egyptian market.
Bearing in mind the surge in both local and imported car prices in Egypt over the past few years due to the devaluation of the Egyptian pound, there is a heated debate regarding the impact of the move on the local automotive market as well as the reasons behind the Egyptian government's eagerness to bring back Mercedes-Benz.
According to the announcement, the passenger car assembly is to be built by a local business partner in close collaboration with the Egyptian government.
“Egypt is an attractive and competitive location for production and supporting logistics. With the planned local assembly we are confident to be able to expand our market position,” said Markus Schäfer, a member of the Divisional Board of Mercedes-Benz Cars, Production and Supply Chain.
In 2014, Mercedes-Benz announced its decision to transfer its investments to Algeria to make the best use of the privileges and incentives the Algerian government offered to the automobile industry. In 2015, the company decided to end production in Egypt due to the anticipated decrease in the customs value imposed on imported European cars under the agreement signed between Egypt and the European Union in 2001 and put into force in 2004.
Under the agreement, the customs value was to be decreased gradually until reaching zero in January 2019. Although Egypt's Finance Ministry called in October to delay the zero customs implementation for another two years, the EU rejected the request. As a result, the imported European cars became cheaper than the cars being assembled in Egypt.
“The withdrawal of Mercedes-Benz was highly expected during that period. Such tariff cuts have a negative economic impact on all companies assembling European cars in Egypt like BMW and Opel,” said Alaa el-Saba, a member of the automotive division in the Cairo Chamber of Commerce and chairperson of Saba Automotive, one of Egypt’s major automotive companies.
Saba told Al-Monitor that the Egyptian car market was not greatly harmed by the Mercedes-Benz decision. “The Egyptians found another alternative, since this move opened the door for BMW to expand in the Egyptian market during the suspension period. It is worth mentioning that Mercedes did not completely suspend its work in Egypt. It just stopped local assembly but the after-sale services and other services were operating normally,” Saba said.
Since the suspension of the German company's local assembly process, the Egyptian government spared no effort to get the company to resume operations. In 2017, head of the Suez Canal Authority Mohab Mamish announced that Mercedes-Benz would get a 96,000-square-meter piece of land to set up a new factory in the Suez Canal’s industrial zone. He said the government was working “day and night to solve investors' problems.”
In further efforts, Egyptian President Abdel Fattah al-Sisi met with Schäfer Dec. 6 and stressed Egypt's openness to cooperating with Mercedes-Benz in the context of the country's policy toward expansion in the automotive industry. He also expressed Egypt's interest in exploring opportunities for cooperation with the German company in manufacturing electric vehicles.
On Jan. 11, Prime Minister Mostafa Madbouly also met with Schäfer, stressing the country's keenness on providing incentives for foreign direct investment in Egypt. Madbouly pointed out that investment in Egypt provides the advantage of exporting to multiple geographic regions of the world thanks to the free trade agreements that link Egypt with many countries and regions.
Two days later, Egypt's Finance Ministry announced that a dispute involving around 700 million Egyptian pounds ($39.2 million) has been settled between the Egyptian Customs Authority and an importer of Mercedes-Benz vehicles.
An official at Mercedes-Benz Egypt who declined to give his name told Al-Monitor that the company's return is considered a milestone and reflects the confidence of investors in the Egyptian market. He said, “This is the beginning of more positive steps in the car manufacturing sector in Egypt, since the big companies can consider Egypt a manufacturing base from which they can export to neighboring countries such as the Gulf countries, besides the African and European countries with which Egypt has inked trade agreements.”
Regarding the impact of this move as well as the tariff cuts, Saba said that the car prices already decreased since the beginning of the month, but it is hard to say that Egyptian consumers will benefit from the change. He said, “More cars will be affected by the Egypt-EU agreement, including Japanese and Korean cars manufactured in Europe. Nevertheless, it is not possible to exactly predict the changes in prices now since the prices of cars that will be produced in 2019 will be determined by the country of origin.”
Saba urged the government to offer more incentives to encourage foreign companies to operate in Egypt. “The companies that assemble European cars won't operate in Egypt unless it guarantees certain profits,” he concluded.
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