Chairman of the Board of Directors and Chief Executive Officer of the Ghabbour Group (GB Auto), Raouf Ghabbour, said that his company plans to invest about $1.5bn to transform from an automotive assembling company to a manufacturing one, provided the government reduces fees and tariffs on the industry.
In an interview with Daily News Egypt, he vowed to ensure the flow of at least another $1.5bn besides the company’s allocated investments, bringing the total to $3bn, if the government decides to approve amendments to the legislation governing investment in the automotive industry.
How do you see the automotive industry in Egypt?
Egypt does not have a real automotive industry that is based on local components. The industry is facing a governmental ignorance, while it should be supported. Investors should be encouraged to pump investments in manufacturing, rather than assembling. Manufacturing will create added value and ease the pressure on the Egyptian pound. With exporting, hard currency can be secured.
The support of the government for the automotive manufacturing sector will meet about 70% of domestic demand by 2018, with half of its production exported to regional markets.
What is the solution then?
The solution is for the government to speed up the reform of all legislation regulating investment in the automotive industry, especially the tax and customs. I think that the current government is serious about doing so, and that a package of amendments to stimulate investment in the automotive industry will be announced soon. Most important of such amendments is reducing customs below 10% on all components used in the manufacture of cars.
It is not logical that Egypt customs imposes up to 135% on automotive components while international ratios never exceed 10%. How can this encourage investors to inject more money to the Egyptian market? However, the EU Association Agreement will create a non-competitive environment for the benefit of non-European components.
Under the EU Association Agreement, customs should be reduced gradually on European automotive imports until it reaches 0% by 2019. Assembling cars in Egypt will not be economically viable on the long term because of the conditions laid down by the European Association Agreement.
How do you see the automotive industry after the reform of the regulating legislation?
It will witness a great start. Egypt will turn from being consumption-producer to an exporting country. I pledge to pump investments of approximately $1.5bn in automotive manufacturing. There are other investors interested to pump about $1.5bn, but they are waiting for the government’s proof of seriousness in reforming such legislation.
Current overvalued customs duties are illogical and unreasonable. It destroys the industry. However, I believe that if the country reduces customs, it may have a negative effect on the state customs revenues. Therefore, I suggest imposing fees to compensate the state. These fees should not be fixed, but rather flexible and based on using of domestic components.
If a factory bases its largest stakes of production on domestic components, or direct a part of its production for export, the government should reduce the fees imposed on it.
Is there an external expansion of the group?
Indeed. We are already working to extend to the Iraqi market with shipments of tuk-tuks. We are seeing a growing demand. The Iraqi market is very similar to the Egyptian market, so I believe they will accept tuk-tuk in stages.
The Iraqi market provides a strong return on investment despite ISIS control on large parts of the country.
GB Auto is the largest automotive assembly and distribution company listed in Egypt. It is also the Egyptian distributor of the three-wheeler tuk-tuks, as well as motorcycles produced by the Indian Bajaj.
GB Auto is also the sole agent in Egypt for Hyundai, Mazda, and Geely. The company sells the car it assembles.
How do you see the tuk-tuk in Egypt?
Those who object to having tuk-tuk in Egypt are not Egyptians. They do not know anything about the culture of Egypt. I am responsible for the import of tuk-tuk only and I cannot be blamed for their drivers’ violations. This responsibility lies on the Ministry of Interior. The presence of tuk-tuk is linked to the presence of slums, where government buses cannot operate.
GB Auto dominates third of the passenger car market in Egypt, which has grown in recent years thanks to loans facilitation, in addition to providing greater variety of Asian cars that are cheaper. The growing population is also another reason.
What about the liquidation of your business in Libya?
Talks about liquidation of our business in Libya are inaccurate. We are still observing the situation there to make our final decision. However, in the mean time, we do not have any intentions to expand our business there.
I am very optimistic about the future activity of the company. The government has started to implement a number of large national projects such as the Suez Canal and extending new roads. This has already created a great demand for transport trucks and construction vehicles. The current political regime is taking reform seriously.
How do you see the future of Egypt, politically and economically?
The political path that was declared is already being implemented. It seems very promising. As for the economical path, it seems to be leading us towards recovery. However, I think it will be much better on the long term. The recent economic reforms were good, but they must be followed by serious implementation and monitoring.
How do you see the subsidy system in Egypt?
The Egyptian regime, since the era of the late President Gamal Abdel Nasser, accustomed people to get goods without paying their actual price through subsidising them. The government has pampered the people. It is time about time to abolish the subsidies system. Egyptians will not die if subsidies were cancelled, and would raise the state’s revenue; decrease the deficit and the debt.
Do you have the intention to invest in the Suez Canal Axis?
We already have a real plan that is currently under scrutiny and undergoing some economic feasibility studies. We intend to establish a logistics area within the Suez Canal Axis. We are still waiting for the formation of the body responsible for the economic zone of the axis to begin in the actual implementation.