How will digital disruption enable Egypt’s Auto Finance Market to achieve double-digit growth by 2027?

Auto finance industry has seen substantial growth in credit disbursement backed by accelerated population growth, vehicle sales, and a surge in financial penetration. Presently, Egypt Auto Finance Market is growing at a CAGR of 18%, 2016-2022. The sector is driven by Purchasing power of individuals and the risk appetite of the financial service provider. Also, the entry of women drivers has led to an increase in total cars sold, and hence the credit disbursed.
However, digital disruption will act as a major catalyst behind the development of the auto finance market in the coming years. Here, we have outlined the key reasons on how digital disruption will help Egypt’s Auto Finance Market to reach double-digit growth by 2027.

1. Growing population and rapid migration to urban areas is leading to an increase in demand for personal vehicles IN Egypt

Total Population by Age (Mn), 2021

Total Population by Governorate (Mn), 2021

Governorate	Population in Mn
Cairo	10.0
Giza	9.2
Sharkia	7.6
Dakahlia	6.8
Others	67.8

Impact of Demographic Change in Egypt

Rapid Growing Population

• Egypt ,being the most populated country in the Arab world (101.4 Mn), is growing faster than other MENA countries leading to an increase in the target audience of automobile industry
• The country is currently ranked 14^th most rapidly growing population in the world and is expected to increase by ~50% by 2050

Shift to Urban Area

• Urbanization is expected to rise to more than 60% by 2030, which means increased demand for jobs, housing, infrastructure, and social services such as public transportation
• Moreover, the recent increase in the cost of public transportation has led to increase in demand for personal vehicles

Workforce and Minimum Wage

• The size of the work force in Egypt was 43.0%. Many standard labor practices apply, including mandatory severance packages, and overtime payments
• The minimum wage in Egypt is currently $152.4. Egypt’s workforce is among the most cost-efficient in the world and suitable for automobile industry

Source: Interviews with Industry Experts, Industry Articles and Ken Research Analysis

2. In 2021, there were 5.4 Mn cars in use and 53.1 cars per 1,000 people in Egypt, which is expected to increase to 56 cars in operation per 1,000 people by 2025

Number of cars in operation per 1,000 population in Egypt

Total number of Cars in Operation, 2021

Key Facts Administered in the Industry

5.6 Mn Number of total cars in operation in Egypt in 2021

$50K-$100K Annual income of households driving most 4W sales

0.4K  Luxury Cars unit sales are expected to reach in 2026

• Renault standing as the highest imported passenger vehicle to Egypt
• Other imported: European passenger cars to Egypt include Opel, SEAT, Mercedes, Fiat and Skoda respectively

Source: Interviews with Industry Experts, Industry Articles and Ken Research Analysis

3. Customers in Egypt can avail auto loans from Banks and NBFCs with an average loan period of 3-5 years

Source: Source: Interviews with Industry Experts, Industry Articles and Ken Research Analysis

4. Large Public Sector Banks including National Bank of Egypt, Bank Misr, and Banque Du Caire rules over 40.0% of the financial banking system in Egypt

Financial Institutions

~608 Institutions

• Financial institutions include commercial banks, foreign commercial bank branches and their subsidiaries
• These service providers have lower financial costs than other service providers

Non-Banking Financial Institutions

~60 NBFCs

• Most of the NBFCs are at a disadvantage as most of them are small or medium-sized entrepreneurs, and they focus on motorcycle hire purchase loans due to their low risk appetite
• Also, they have a higher risk of bad debt than other service providers because most of their customer base is low income earners

Captive Finance

~10 Players

• Captive finance has played a strong role in the Egypt auto leasing business over the past several years due to the low interest rates as compared to other institutions
• These companies have a strategic advantage as they provide one stop solution to their customers

Key Players in Financing

Source: Interviews with Industry Experts, Industry Articles and Ken Research Analysis

5. Dominance of unorganized channel and favorable government initiatives has boosted the growth of auto finance industry in Egypt

Unorganized Channel to Hold Prominent Share

• COVID-19 era has witnessed businesses strengthening their digital presencein order to attract consumers as their preferences have shifted
• Dealerships have enhanced their digital presence in order to gain visibility among consumers

Positive Impact of COVID 19

• Market is dominated by the unorganized sector, where the scope for consumer protection is on the lower side
• Unorganized dealers gain the confidence of the buyers by eliminating subjective bias about sellers (which might include particular vehicle brands & models), while simultaneously easing the overall transaction

Fintech

• The competition in the market is about who is offering the fastest service and not the lowest price. All the major players are investing in the fintech tool. The purchasing power is now going to be with the new/younger generation who are seeking technology. The financial institutions are targeting the new generation

Energy sector reforms impacting consumer demand

• The Egyptian Government undertook major energy sector reforms to address the power outages and re-establish Egypt's potential as an oil and gas producer by reducing pricing distortions and arrears

Government initiatives impacting consumer behavior

• Macroeconomic indicators have reacted positively to the energy sector reforms, which can be seen through accelerated economic growth (2018-19). This, clubbed with the foreign currency exchange rate market being contained, narrowed external deficits, and an increase in international reserves will make Egypt's economic reform program successful. This success will have a positive impact on the local passenger vehicles market as the country's GDP grows and consumers' purchasing power gradually increases

Source: Interviews with Industry Experts, Industry Articles and Ken Research Analysis

6. Growing population, and increasing demand for passenger cars will act as a key strength to the Egypt auto finance market; low internet penetration may affect the market

STRENGTH

• Growing population (1.8%, 2020) and opting for personal vehicles, has led to the growth of automotive sector
• Constantly evolving product market is dynamic and ever evolving
• Increase in cab providing platform like Uber and Careem and women drivers (15,000+)¹ driving the auto finance market.
• More than 191K Passenger cars were sold in Egypt which added a huge growth in auto loan market

WEAKNESS

• No standardized criteria for evaluation & certification of vehicles by dealers
• Dominance from unorganized players: Price conscious & lower income group people prefer offline unorganized sources.
• Low internet penetration and finance literacy will act a weakness in market

OPPORTUNITY

• Changing lifestyle and modern consumer groups demand more luxury
• No of households who are eligible to buy a car (25.1 Mn) present a favorable opportunity of auto finance in Egypt
• Increased income level & job opportunities has motivated lower income group consumers to prefer personal vehicles over public transport
• Women’s active participation in driving cars will be an opportunity that can be leveraged by car finance institutions

Source: Interviews with Industry Experts, Industry Articles and Ken Research Analysis I 1. Reuters