By Ahmed Amer
Alaa Alsabaa, Chairman of the Board of Elsabaa Automotive Group, in an interview with Daily News Egypt describes the reasons behind a boom in the automotive sector during 2014.
Due to the anticipation of new customs reductions to be applied on European cars this year, how do you view the impact of the Egyptian-European partnership agreement on the automobile sector and competing markets?
The automobile market witnessed a slowdown in sales in recent months as a result of customers’ anticipating the new customs reductions for European cars, which will account for 2.5% of the price of the car. However, the response means lower cash reserves of foreign currency, which has pushed the dollar to rise by 4% on the black market. The dollar increasing against the pound will erase the customs reduction on European cars this year, as 90% of international auto companies raise their prices by 2% each year.
The price of currency is one of the most important challenges facing the automotive sector, which observes government trends toward investors’ demands in Egypt regarding the price of the pound against foreign currencies. This will form one of the most important issues to be discussed at the economic summit held in March, and the response to these questions will chart the future of the Egyptian economy.
Regarding the impact of the agreement on other automobile markets, like Korean and Japanese cars, those industries are influenced by the Egyptian-European partnership agreement and have begun resorting to importing cars from factories in European countries in order to take advantage of the agreement. Kia, Hyundai, Nissan, Suzuki, and Toyota have begun exporting cars from factories in European countries to Egypt. The Japanese market was not affected by the new tariffs, which will weaken the Japanese currency, and open the door to competition. But car manufacturers in Egypt will suffer from the agreement, and believe that government incentives are necessary to ensure the continuation of the industry.
The advantages the Egyptian market will reap from the agreement is that cars with 2000cc engines will fall in price noticeably, but the dollar’s relative strength compared to the pound will weaken the influence of the agreement for 1600cc vehicles. I expect that if the customs reduction is completely implemented by 2019, alongside an improvement in the Egyptian economy, the sector will witness a noticeable boom in automobile prices, which will decrease and thereby encourage an increase in purchases and exports.
What is the volume of the group’s investments? And what are the most important expansions that will be made in the future?
Company investments amount to approximately EGP 170m, and the company is about to inject another EGP 150m in investments to open a new car exhibition with a service centre on Ring Road in June. This also includes the construction of a showroom in Mansoura in January as well as a new Suzuki service centre in Sheikh Zayed and a Peugeot service centre in Maadi in April. New service centres covering Upper Egypt and the Delta are planned to be built during the second half of this year, and the company is considering obtaining a Chinese automobile brand. Negotiations have stalled with the Chinese company at present due to technical reasons pertaining to the needs of Egyptian consumers and the local market in general.
How much did Elsabaa Group achieve in terms of sales during 2014, and what are your goals for 2015?
Company sales reached nearly EGP 1.1bn during 2014, registering a growth rate of 17%-20% compared to 2013.
The growth target for 2015 is a 20% expansion in sales compared to 2014, ranging between EGP 1.2bn and EGP 1.3bn. Our company’s share of auto market sales is approximately 3% of the total.
What was the best-selling car in 2014, and what are the most anticipated cars that will be offered in the near future?
Nissan was the best-selling brand, followed by Kia and Peugeot. The best selling model was the new Nissan Sunny, followed by Kia Cerato and Kia Carens in second. Peugeot 301 and 508 came in third. Honda’s cars are high-quality, but the price increases over similar cars like Toyota and Nissan have caused fewer sales on the Egyptian market. Honda intends to offer a new model at the end of this year and Kia is on the verge of offering a new sedan at the AutoMech Formula 2015 exhibition with a price ranging between EGP 150,000-195,000, on par with the price of a Kia Cerato.
Recent times witnessed the emergence of reservation lists for some cars, most notably of which is the Peugeot 301. What is the situation of this crisis?
The company has begun to resolve the crisis regarding late receipt of Peugeot 301 vehicles and was able to decrease the three-month waiting period to two months. In the near future, the problem will be overcome.
What is the role of the Suez Canal Axis Development project in pushing sales growth in the automotive sector, and what investment expansions have Elsabaa Group made for the project?
The Suez Canal Axis Development project has contributed to truck and dredger sale growth, as huge demand for pick-up trucks and tractor trailers was witnessed. I expect demand to double for transport vehicles with the announcement that the state has begun constructing the logistics area in the Canal. The company will contribute to covering the needs of companies participating in excavation operations for mid-sized pickup trucks and has applied for a bid to supply pickups with one or double cabs.
Elsabaa is also in the process of establishing a pickup truck company within two months, and the coming period will witness growth in demand for transport vehicles. Various investors will participate in establishing the new company.