A preliminary agreement has been reached with the Russian authorities for the creation of a new industrial park in Egypt, where several countries’ carmakers will be invited to assemble vehicles.
According to deputy head of Russian Industry and Trade, Georgy Kalmanov, the park will initially accommodate Russian OEMs including Gaz, AvtoVaz, Uaz and Kamaz. Non-Russian producers with capacity in Russia also will be welcomed, however.
“Our target is to create an industrial zone for localised Russian production, with further access to Egypt and other African markets,” said Kalmanov. “We are hoping [to secure] certain preferences and tax breaks there, and in terms of financing it will include fully Russian projects and joint ventures with some local manufacturers.”
Most Russian carmakers are optimistic about the potential of the Egyptian market and say they are considering different ways of getting involved in the project.
“The Egyptian market is highly protected with high customs duties and it is impossible to be competitive in this market without producing locally,” commented Leonid Dolgov, director for international business development at Gaz Group. “Localisation of the finished product has to be more than 40%, along with localised lines for welding and painting.”
Representatives of the Russian Economy Development Ministry have revealed that occupiers of the new hub will operate under the same conditions as local Egyptian companies, with customs duties on components and kits of 10-40%.
The Russian Ministry of Industry has been struggling to get the area confirmed as a special economic zone, but if it succeeds, those operating there should be exempt from income tax for five years and will also be able to export cars without any of the usual regulatory permits.
They would also enjoy a lighter rate of sales tax, which would only apply to vehicles manufactured from imported components.
Monthly rental rates at the site are likely to be in the order of US$3.5-7 per hectare.
Springboard to AfricaConsultancy EUPartments has suggested the new site would be of particular interest to Russian carmakers as a base for further, low-cost supply to other African countries.
EUPartments spokesman Sergei Burgazliev pointed out that numerous car manufacturers were already in Egypt including Fiat Chrysler, Mercedes-Benz, GM, PSA Peugeot Citroën, Hyundai, Suzuki, BMW, JAC, Daewoo and Nissan, as well as about 300 components producers.
“If several Russian car companies were to concentrate capacities in one place, they would be able to combine their logistics flows and achieve significant savings,” he said. “In addition, a single industrial park would be much easier from a communications infrastructure point of view. Such cooperation can produce very good synergies.”
The move follows an earlier, similar agreement in 2015 between the Russian government and Vietnam, which granted Russian manufacturers the right to duty-free supplies of components and kits. The Russian government has suggested that arrangement should be considered as a base for Russian carmakers to expand into Asian markets including Thailand, Indonesia and China.