As elsewhere in the region, the Egyptian auto market was heavily hit by the impact of the global economic recession in the first half of 2009. Sales of vehicles dramatically dropped by just over a third in H109 compared to the same period in 2008, according to research by Business Monitor International (BMI). 

Car and truck sales were particularly hit hard - dropping by about a third - and bus sales declined by approximately a quarter. It was only the SUV market that seemed to survive the impact of the world economic meltdown, as sales actually increased by just over 10%. However, after a tough first half, there is confidence in the Egyptian auto sector that conditions will improve and that the worst has already been experienced. For example, AMIC reports that sales in June were 25% higher than June 2008.

Indeed, it is BMI's view that sales will increase by 4% next year and that growth for the following three years will average around 25%. While conditions may be turning around, growth in car sales may still be restrained by restrictions on access to financing for auto purchases from banks and from high inflation. After a dip in the value of car sales in Egypt in 2009, the value of sales is expected by BMI to recover strongly by 2011 to US$12.35bn, reaching US$19.61bn in 2013.

With a slowing economy, it is unsurprising that commercial vehicles have been particularly badly affected. While sales of passenger cars are linked to disposable income, the commercial vehicle market is related to the strength of businesses.

In H109, 16,380 trucks were sold, representing a 32% year-on-year (y-o-y) drop and indicating that the Egyptian economy was struggling. Sales of pick-ups, mini pick-ups and medium trucks dropped by 34%, 33% and 37% respectively. The biggest fall was for medium trucks (9-16 tonnes) which dropped by 56%, while heavy trucks fell by 17%. The market for buses also declined severely in H109, with a drop of 24% to 6,900 vehicles. The biggest fall was for buses used to transport tourists as the economic downturn has resulted in a sharp drop in tourism numbers. Large tourism buses witnessed a drop in sales of 82% y-o-y, with just 44 being sold in the first six months of 2009.

Although the economy looks to be recovering somewhat, the month of Ramadan is not typically a time of heavy vehicles sales, while a succession of holidays following the religious festival will also not be conducive to new car sales.

As a result, the market will likely remain stagnant in H209 before recovering in 2010.

Although momentum has slowed, the Egyptian government still appears very pro-business, and if it remains in power, the prospects for further private sector growth over the coming years are positive. However, this pro-business stance is yet to feed through to reducing poverty levels, and perceptions of corruption will continue to make some of its policies unpopular. However, if Gamal Mubarak - the son of President Hosni Mubarak and seen as his father's successor - and the 'technocrat' government he helped introduce remain in place, then the private sector and banking system should continue to flourish. Still, Egypt only comes in second place in our business environment rankings for the Middle East and North African region.

This article is based on the BMI's Egypt Autos Report Q4 2009 (download)

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