Amirah El-Haddad, Jeremy Hodge and Nizar Manek
June 2017, Economic Research Forum (49 pages)
Abstract
The Egyptian automotive industry developed under the country's policy of import substitution industrialization (ISI). It mainly catered to Egypt's small domestic market. The Open-Door Policy of the seventies opened up the sector to joint ventures and imports with further liberalization with the Economic Reform and Structural Adjustment Program (ERSAP) in the nineties. Despite some liberalization, the main features of the seventies' import substitution policies remained in place. Both assembly and feeder industries were protected through relatively high effective rates of tariff protection and local content requirements. The sector has faced a series of setbacks since the January 2011 revolution and then again in 2015, the latter including maximum caps on dollar withdrawals and deposits imposed by the Central Bank of Egypt (CBE). The sector's influential businessmen have developed a draft law for a series of non-tariff trade barriers to protect their assembly and manufacturing roles in the industry. Unable to compete in the global environment, if not protected these firms would turn into importers and distributors. This study documents the evolution of the sector since the Nasser era. It also discusses the interconnected network of politically connected firms and its influence over the policy making process in Egypt. The first part of the paper examines the protective environment within which the automotive sector has grown and the way it has shaped industry structure and market players. The second analyzes state-business relations and the interlinked network of power within the industry.
Executive summary
The Egyptian automotive industry has evolved as part of the country's import substitution policy, which is mainly aimed at Egypt's small domestic market. The open-door policy of the 1970s opened the sector to joint ventures and imports with further liberalization with the economic reform and structural adjustment programme of the 1990s. Despite some liberalization, the main features of import substitution policies in the 1970s remained. The assembly and feeder industries were protected through relatively effective rates of protection of tariffs and local content requirements. The sector has faced a series of setbacks since the January 2011 revolution and again in 2015, including the maximum catch for dollar withdrawals and deposits imposed by the Central Bank of Egypt. Influential businessmen in the sector have drafted a bill for a series of non-tariff trade barriers to protect their role in assembly and manufacturing in the industry. Because of the inability to compete in the global environment, if not protected, these companies will become importers and distributors. This study documents the development of the sector since the time of Gamal Abdel Nasser. It also discusses the position of politically relevant companies and their impact on egypt's policy-making process. The first part of the paper deals with the preventive environment in which the automotive sector has grown and the way in which it shaped the structure of industry and market actors. The second analyzes state-to-state relations and trade relations.
