On January 18, Mercedes-Benz issued an official statement to announce that the company will start automotive assembly in Egypt again after a hiatus of roughly four years.
In 2015, the car manufacturer announced it would end assembly in Egypt, citing the lack of foreign currency in the market and the implementation of the General Agreement on Tariffs and Trade (GATT) as the primary reason. Under the terms of the EU-Egypt Association Agreement concerning the GATT, Egypt was to gradually eliminate tariffs and customs duties by 2019, making cars manufactured in Europe cheaper or equal to the cost of locally assembled cars.
Mercedes’s decision to launch assembly in Egypt again, which coincided with the final step in removing all tariffs on imported cars in January, seemed to fly in the face of this logic, however, leaving many puzzled.
Several factors have been at play in paving the way for Mercedes’s return, according to Hamdy Abdel Aziz, an engineer and former head of the Chamber of Engineering Industries in the Federation of Egyptian Industries. He says that the settlement of a LE700 million customs dispute between the Egyptian Customs Authority and the company lessened tensions between the two sides days before the larger announcement of the automaker’s return. Another factor, he speculates, is that the costly customs fees imposed on Mercedes SUVs manufactured in the US, a result of the ongoing trade war between the US and China, may make Egypt an attractive alternative.
Beyond these factors, however, Mercedes’s return is marked by what sources say are early indications that a deal has been struck to have the Egyptian government serve as the automaker’s “local partner” in the construction of a new assembly plant, which would usher in what the government hopes will be an electric vehicle network for the new cities it is pushing as part of a nationwide urban development plan. While this agreement, and what sources say were President Abdel Fattah al-Sisi’s direct efforts, were responsible for bringing the automotive manufacturer back to Egypt, industry insiders are doubtful that the return of Mercedes alone is enough to revive the flagging automotive sector.
The government’s role as the local partner was first hinted at in the official statement issued on January 18 by Markus Schaefer, a board member and the head of production planning at Mercedes-Benz. In the statement, Schaefer said that Mercedes plans on building a new factory for assembling cars in Egypt and that a local partner will be responsible for building the plant.
The government had been vocal about its willingness to produce smart and electric cars, especially for the new cities, which was recently expressed by Bassam Radi, the presidency’s official spokesperson, following Sisi’s meeting with Shaefer last December. “During the meeting, the possibility of cooperating with the German company to manufacture self-driving vehicles was suggested. The cars would be used inside the new cities currently being developed, and especially in the new administrative capital,” Radi said.
Abdel Aziz says, “I would not be surprised if a state institution partners with Mercedes to manufacture cars for internal transport services in the new cities, thus repeating the experience of Al Nasr Automotive Manufacturing Company with Deutz AG, a German manufacturer that specializes in vehicles for collective transport services.”
According to a source in the automobile assembly industry, who spoke to Mada Masr on condition of anonymity, there is a closer tie between Radi’s comments and the return of Mercedes to the market.
Mercedes, the source says, plans on building two factories in Suez — one for the production of gearboxes and another for electric cars, which would be an obvious outlet for the state’s desire to establish an electric car network.
“I believe that there is a rush to manufacture electric cars because the infrastructure is not sufficient yet,” Abdel Moneim al-Kadi, an engineer and deputy head of the Chamber of Engineering Industries in the Federation of Egyptian Industries, says, pointing to the need for vehicle charging stations.
The source in the automobile industry and Kadi both say that Sisi’s considerable efforts with Mercedes had a huge impact on the latter’s decision to return to the Egyptian market once it solved its financial disputes with the Customs Authority.
Last October, on the sidelines of his participation in the G20 Africa Partnership conference in Berlin, Sisi witnessed the signing of a memorandum of understanding between the Egyptian government, represented by the Ministry of Commerce and Industry, and Siemens to improve the competitiveness of Egyptian industry. On December 6, 2018, the Egyptian president met with Schaefer in Cairo to discuss Mercedes’s return to the Egyptian market and other mechanisms for cooperation.
According to Kadi, the government has already begun paving the way for the company to reenter the market. Prime Minister Mostafa Madbuly met with Mercedes representatives in early January, followed by the minister of trade and industry, and finally Minister of Finance Mohamed Maait, whose ministry had settled the dispute between Mercedes and the customs authority.
While Mohamed Geneidi, the chairperson of the Industry Investors Syndicate, thinks that Mercedes returned to the Egyptian market thanks to Sisi’s individual efforts, there are no signs that other companies that had left the market will return — or that more foreign investments are on the horizon, in a country whose debt market that has lost an estimated $8 billion dollars in foreign investments in recent months, according to a December Capital Economics report.
Geneidi also adds that Mercedes’s reentry to the market does not signal that Egypt will become a regional hub for automobiles, as some industry figures have asserted in local media. He states that it is too early to speak about a regional hub for automobile assembly because the investment climate is constrained by centralization, the slow pace of litigation and outdated market legislation. Abdel Aziz also stressed that the market is need of governmental measures to support local production, because the government’s previous “automotive industry strategy” is now outdated.
In October 2016, the government proposed a draft law on developing the automotive industry to Parliament. The draft law was discussed in parliamentary committees before being presented in the plenary session. But the discussions in the committees resulted in many disagreements over the draft, and extensive comments were sent back to the government for reconsideration. So far there have not been any further developments.
If the automotive industry remains in its current state, Association of Car Manufacturers Secretary General Khaled Saad tells Mada Masr, matters will become difficult. Beyond the view that sees Mercedes’s return as a harbinger of an upturn for the market, Saad says that there is a need for urgent protective measures for the local industry given that customs on import of cars from Europe have been eliminated. He added that the government is now drafting a different law to boost the local manufacturing of cars.
“It’s time for this law to be issued and save investments in automobile assembly,” he says. “If left in this state, the market will be abandoned by small investors.”