Why One Company’s Planned Investment Means The World To Egypt

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VENTURES AFRICA – The decision of GB Auto, Egypt’s biggest vehicle company, to invest $1.5 billion to build two new factories is being seen as a vote of confidence for the country’s political stability following years of turmoil.
Chief Executive Raouf Ghabbour, who announced the company’s plans, said he was confident about investing in Egypt because of its stable political situation. “Our investment decisions are going to be much easier going forward,” he told Reuters in an interview on Tuesday. “We are looking at a big wave of investments,” said the CEO, adding that the firm was looking at building the new factories in the next 3-4 years.
Egypt’s economy has been battered by political turmoil since a 2011 uprising toppled long-time leader Hosni Mubarak in 2011. Current President Abdel Fattah al-Sisi, has pledged to get the economy back on track and lure back investors by creating a more business-friendly climate.
GB Auto’s $1.5 billion investment plan is a huge plus to the
president’s efforts; it would be the company’s biggest-ever investment programme, significantly larger than its 2010 $40 million investment to boost production capacity.
But there are a few bottlenecks
GB Auto’s planned rights issue has caused a suspension of trading on its stock by Egypt’s stock exchange. The company is Egypt’s biggest listed vehicle assembler and distributor. The bourse said the shares freeze, announced today, will be in place until it provides more information to the market about its planned rights issue. Ghabbour told Reuters on Tuesday it was working on a share issue to boost its capital by 1 billion Egyptian pounds ($139.86 million).
GB Auto is Egypt’s sole dealer of Hyundai, Mazda and Geely passenger cars and sells cars it assembles from kits. It is also the country’s distributor of three-wheeler tuk-tuks and motorbikes made by India’s Bajaj.
According to Reuters, the company weathered the economic turmoil better than most partly because the demand for tuk-tuks and motorbikes has remained strong as they can provide a cheaper alternative to cars and are well suited to the country’s heavily congested city roads. The CEO revealed that one of the two planned new factory complexes would include a new $50 million assembly plant for tuk-tuks and motorbikes in the city of Suez. “The volumes are growing so we are planning to establish a far bigger capacity near Suez. It’s a capacity of 100,000 three-wheelers and 100,000 two-wheelers, partially for exports to east African markets and partially to cover the demand in the domestic market,” he said.
Not yet Uhuru for Egypt’s Economy
Although Ghabbour lauded Egypt’s return to political stability, he was less optimistic about the economy. “It will continue to be a challenge for the next few years. The budget deficit is in excess of 10 percent. You can’t solve this overnight. So it will take time,” he said.
However, the GB boss predicted the company would post a revenue of about $1.7 billion for 2014. This would represent a rise of around 30 percent rise from the earnings of the year before. Ghabbour also said the company would also seek to enter new markets in east Africa, without being more specific.