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Electric Vehicles: A Window of Opportunity for Egypt

by Tarek Erfan Shafey

Egypt’s Potential

As a populous, lower-middle income and leading Arab and African country, Egypt faces challenges on which it can nevertheless act and turn into opportunities. As a densely populated country with serious traffic congestion, air and noise pollution problems caused by fuel-based vehicles, the production and exporting of electric vehicles is both an excellent domestic solution and a great opportunity to lead this nascent market in the Arab region and Africa. Electric vehicles (cars, buses and other public transport vehicles, trucks and trains) are the transport modes of the future. They are all quiet and orderly, fuel-free, very environment-friendly and save considerable expenses. Egypt’s natural competitive advantages add up to great potential in this industry.

Egypt has a population of 101 million (the highest in the Middle East and North Africa region including Turkey and Iran, and 3rd highest in Africa, after Nigeria and Ethiopia), a strategic location on the Suez Canal shipping route (the world’s busiest), near its main, Arab-region and African potential markets for electric vehicles, and strong and deepening regional and continental trade links. It has the 2nd largest African economy (after Nigeria) and Arab economy (after Saudi Arabia), a large and cost-competitive workforce, moderate in skill but readily trainable, an existing industry producing cars, buses and trucks, well-established steel and aluminum industries, natural gas and electricity surpluses, and very high renewable energy potential, which are together a solid foundation for a thriving electric vehicles industry. Egypt is a net importer of oil and its fuels, but their trade balance can be swung to a valuable surplus by switching to electric vehicles (plus other policies), which would also offer great air and noise pollution-sparing and public health benefits.

The assembly of cars in Egypt began in 1960, in a partnership by the state monopoly (Nasr Automotives) with Italy’s Fiat. It was a time of statist policies in Egypt, with after-effects lingering until today, especially the country’s market inefficiencies, dominance of state-owned enterprises, difficulty of doing business, and lack of transparency and efficiency in implementing the rule of law, all of which have long held back foreign investment in Egypt despite the country’s considerable natural advantages. There was no importing or exporting of cars at first, as the full emphasis was on import substitution. Nasr continued for several decades to partner with Fiat and its Balkan-country and Turkish subsidiaries in assembling their successive car models, and later on with France’s Peugeot, but it was always mediocre-quality assembly of cars, protected by high tariffs on imports. Eventually, subsidiaries of other foreign companies assembled cars in Egypt, Nasr was unable to compete well, and there was never a real domestic appropriation of major car component-producing technologies.

The domestic market is now very fragmented with a glut of foreign firm subsidiaries assembling cars in numbers way too small for efficiency and high quality. Cars assembled locally lack the quality and cost-efficiency to compete should import tariffs be lifted, and their prices are artificially high in Egypt due to market inefficiencies and high import duties, while affordability remains low due to modest income levels among much of Egypt’s middle class. Moreover, due to Egypt’s free trade agreement commitments, car import tariffs are indeed steadily being lowered, which is good for the consumer but spells deep trouble for local car assemblers, whose prospects appear increasingly bleak. The time is now ripe for change and a fresh start with electric cars: this time based on firm economic foundations and fair and socially equitable but market-friendly reforms.

Buses, other public transport vehicles, and trucks have generally fared better in Egypt. For a time, Nasr assembled those vehicles, which have avoided the glut of assembling firms seen in cars. Ghabbour Motors has positioned itself as the leading Egyptian producer and exporter, and has been quite successful with its high quality products. Train production in Egypt has been limited with most trains imported, but this can be turned around, and here too Egypt can become a successful producer and exporter, with the right foreign partner. Looking to the future now, we start with cars, where the strategy should be (with a suitable international partner) to position Egypt as a leader and the regional headquarters and center to produce, sell and distribute electric cars and their spare parts for Africa and the Arab region, while the parent company would be responsible for marketing and post-sale servicing of the cars. For buses, trucks and trains, the strategy would be very similar, with Egypt’s prospects much better due to a number of crucial factors, as explained below.

Electric cars are still relatively new, rare and high in cost worldwide, and Egypt needs to choose its partner well to produce for its home market and export. Given Egypt’s relatively modest per capita income levels and moderate workforce skills, western European, American, Japanese or even South Korean electric cars would all be a bad fit. They would be unaffordable for most Egyptians, and as export products they would not be successful, as Egyptian workers and firms would struggle to cope with the complexity and luxury/prestige element of the cars and the stringent quality control standards of their firms. High export prices and relatively poor value for money would render electric cars produced by those firms in Egypt uncompetitive abroad.

Chery, the leading Chinese electric car firm, would be a much better partner, and its cars would be efficiently produced, affordable in Egypt, and cost-competitive abroad. It is important, however, to require the training and employment of Egyptians at all levels, and a clear and binding plan to eventually produce all car components in Egypt. And even though this sounds counter-intuitive and competition-stifling, which it is not, a special consideration here is that large-scale production of cars is a must for efficiency and profits, and so the joint venture needs to be a private monopoly firm closely regulated by the state for consumer protection, with strong export promotion and marketing efforts, and high import duties on other electric cars at first to protect the budding industry, which in the initial phase can also coexist with foreign fuel-based cars assembled in Egypt. A well-designed, fair and well-executed plan would be needed for a full switch to electric vehicles.

Much better chances exist for Egypt in producing and exporting electric buses, trucks and trains. All of them are free of the required luxury and prestige element which is Egypt’s weakness, and are labor-intensive, which is a key Egyptian competitive strength. With its current and potential industrial, fuel availability, lower costs and better trade relations strengths, Egypt is in a position to efficiently compete with Turkey and others in Africa and the Arab region. Ghabbour Motors, having long successfully produced and exported buses, other transport vehicles and trucks, has the business expertise and skilled labor force to be assigned the task of producing and exporting electric buses and trucks, in partnership with leading Chinese firms who would provide the technology, marketing and post-sale servicing. For producing and exporting electric trains, Egypt would also need a foreign partner, and China has certainly proven itself in that area too. Egyptian-Chinese relations are excellent, and a partnership between a leading Egyptian and leading Chinese firm would be a successful one.

Supporting Policies

Egypt’s state needs to and can guide the process of appropriation of this new and very important industry. A start would be to carefully choose exactly where to produce the vehicles. Two locations for new industrial zones with export ports are the best: at a new area on the north coast west of Dabaa town, and at the Red Sea city of Ras Ghareb. Both locations are far away from resort tourism, sunny and windy (especially the latter) with very high solar and wind power potential, and near sources of natural gas, relatively easy access to both domestic and imported steel and aluminum, and to seawater desalinated via concentrated solar power (CSP), to be treated after use and re-used more than once. Exporting and importing would be easier via the ports, and would for the most part spare the expenses of passing through the Suez Canal and paying its transit fees.

Further investments and efficiencies are needed for the success of this mineral and energy-intensive industry. Energy efficiency and environment protection need to be strictly mandated and monitored, and investments and reforms are needed in renewable energy and the steel and aluminum industries. Most important are investments in photovoltaic and concentrated solar power and wind power stations. A special process (“anaerobic digestion”: catalyst-assisted, oxygen-free heat treatment) of Egypt’s 48 million tons of unprocessed organic, agricultural and animal waste would yield biogas (a standout, renewable, inexpensive and environment-friendly substitute for natural gas) equivalent to 720 billion cubic feet of natural gas, which is a remarkable and game-changing 35% of annual consumption, as well as 16.5 million tons of compost, which is a top-quality organic fertilizer that would transform Egypt’s important and job-intensive agricultural sector.

Privatization and reform are needed for the steel and aluminum industries, along with using biogas and CSP as cost-saving and environment-friendly energy sources. This is an especially important factor in the smelting of aluminum metal from alumina ore, as the process is very electricity-intensive. Energy efficiency, efficient recycling, and re-production from scrap of both steel and aluminum are very important. Finally, new steel and aluminum factories need to be located in the two above-mentioned zones, due to their clear advantages.

Further and important efficiencies can be realized. Most of the demand for the costly and very disadvan-tageous cement and steel can be saved via smart mandated choices of materials (abundant in Egypt, sturdy, cost-saving, heat-efficient and environment-friendly) for buildings, and also for roads. Short luxury villas and* apartment buildings would be built of limestone or sandstone, middle and lower-income homes and apartment buildings: of compressed earth bricks (a mix of clay, sand, micro-pebbles and lime), while plastic waste would be used very well, both to build fine non-residential buildings and pave remarkably comfortable and sturdy roads. Electric vehicles would be primarily built of aluminum, which is lighter, more fuel-efficient and non-corrosive. Lastly, reforms are needed for ease of doing business, improving transparency, the business environment and rule of law, and a flexible but fair labor market that promotes investment and job creation.

Inside Egypt, a well-planned and executed phase-out is needed for fuel-based vehicles and their fuel stations, to replace them with electric vehicles and their battery charging stations. Ever more advanced and cheaper solar power technologies will surely help and accelerate that trend. Older, fuel-based vehicles that are no longer needed can be exported to African countries with no electric vehicles infrastructure. The state would compensate the domestic car assembly firms for their production phase-out, buy and profitably resell their land, and compensate and help retrain and employ laid-off car workers in producing electric cars and vehicles.

Finally, Egypt needs to upgrade the productivity and competitiveness of its industrial workers by adopting Germany’s technical and vocational training curricula, which have long proven to be world-class and have resulted in long-standing excellent productivity and well-paying jobs in that country’s manufacturing sector. Electric vehicles are a great opportunity for Egypt, but it needs to move fast, as it faces strong potential cost-efficient regional and continental competitors: Turkey, Morocco, Iran, Algeria, South Africa and Ethiopia. Many of them already have stronger, fuel-based vehicle industries, which makes it essential for Egypt to quickly seize its window of opportunity, so as to establish a lead in the nascent regional and continental electric vehicles market. Ultimately it is up to Egypt, which surely can and needs to make it happen.

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