Amid political unrest in Egypt, three global vehicle manufacturers have closed their production operations in the country, with a view to resuming manufacturing at a later date depending on further developments.
IHS Automotive perspective | |
Significance | Political unrest in Egypt is affecting the local operations of automakers in the country. |
Implications | Toyota, Suzuki, and General Motors have all suspended production at their plants in Egypt. |
Outlook | Although increasing vehicle sales in Egypt is a positive development for automakers, if public order in the country deteriorates, they may be forced to re-examine their plans for expansion in Egypt and further afield in Africa. |
Political unrest in Egypt, resulting from the provisional government's crackdown on demonstrators, is affecting the local operations of automotive firms in the country, reports Reuters. Japanese automakers Toyota and Suzuki suspended production at their respective vehicle manufacturing plants in Cairo and 6th of October City yesterday (15 August) after a state of emergency was declared, out of concern for the safety of their workers. Meanwhile, US-based carmaker General Motors (GM) closed its Cairo office and halted production operations at its plant in 6th of October City. GM employs more than 1,400 people in Egypt.
Over 600 people have been killed and nearly 4,000 wounded in violence after police razed two Cairo encampments of supporters of ousted president Mohamed Morsi. The supporters torched government buildings, churches, and police stations in retaliation for the crackdown.
Toyota, Suzuki, and GM will make a decision on whether to resume operations at their plants based on further developments in the country.
Outlook and implications
Since the 2011 removal of the Hosni Mubarak regime, the risk to business and investors from an unstable political, economic, and security environment in Egypt has risen dramatically. The underlying and persistent instabilities in the country are exacerbated by a lack of coherence and consistency on economic policy and the government's inability to control the political reform and democratic transition processes. Disputes with the judiciary, political opponents, youth movements, and the military have combined to create the impression that the current government and president are inexperienced and opportunistic. Policy formulation remains ad hoc and reactive, with little apparent effort to attempt to apply strategic thinking to Egypt's many problems. This can partly be explained by the prolonged absence of an elected lower house of parliament, but it is also indicative of how quickly political short-termism has taken hold at a time when long-term stability is required to enable democratic entrenchment and economic recovery to begin to take place.
Last month, GM, Toyota, and BMW, among others, witnessed disruption to their sales and production operations in Egypt as a result of the political unrest in the country, but the situation subsequently seemed to return to normal. BMW and GM halted their sales and production activities during the first week of July, while Toyota suspended sales at all of its Egyptian dealerships from 29 June to 1 July (see Egypt: 8 July 2013: Political unrest affects BMW, GM, Toyota in Egypt).
Egypt is one of the largest vehicle-producing nations in Africa and a major destination for several global automakers (see China - France - Australia - Fiji - Egypt: 6 May 2013: Chinese automakers increase global footprint). Last year, GM started assembling the Chevrolet Move Microvan at its Egyptian plant using knocked down kits supplied from China (see China - Egypt: 17 May 2012: GM starts assembling Chevrolet Move microvan in Egypt from Chinese knockdown kits). Furthermore, Chinese automaker Zhejiang Geely Holding is reportedly planning to strike a deal for local production in Egypt (see Egypt: 17 September 2012: Geely eyes CKD production in Egypt – report). Meanwhile, the Egyptian government is also making efforts to develop the country's automotive industry. The administration recently initiated talks with Indian automaker Tata Motors about setting up a vehicle manufacturing facility, seeking a joint venture between an existing state-run firm and Tata (see Egypt: 21 March 2013: Egypt invites Tata to set up auto plant).
Although reliable automotive sales and production data are hard to come by, reports indicate that Egypt's car sales grew 14% year-on-year (y/y) to 68,106 units during January-April 2013. Increasing vehicle sales during a time of political instability is something of an exception. It can be attributed in part to pent-up demand as vehicle sales dropped sharply in early 2011, when people took to the roads in protest against Mubarak. Although the rise in sales is a positive development for automakers, if public order in Egypt deteriorates, they may be forced to re-examine their plans for expansion in Egypt and further afield in Africa. Amid the unstable political environment, IHS Automotive forecasts that light-vehicle production in the country will drop 7.7% y/y to 84,097 in 2013, while sales will decline 3.6% y/y to 205,255 units.