Motorcycle Ban Could Prove Too Costly

The Egyptian interim government has given the minister of finance the go-ahead to ban imports of motorcycles, three-wheeled taxis (tuk-tuks), which are largely unlicensed, and the parts to assemble them locally. The ban has not yet been implemented and BMI believes there are a number of reasons why it could do more damage than it achieves and may yet be shelved.

Despite being temporary - the fully built vehicles ban is for a year and the parts ban for three months - the move would hit one of the most affordable vehicle segments in the country, at a time when BMI believes the economy is in a position to turn a corner and private consumption can increase from a low base. Although exact data for the motorcycle and three-wheeler market is currently unavailable, the segment serves more than just personal use, which brings us to another point.

The tuk-tuk taxi sector, although unlicensed in some areas and officially outlawed in others, is a living for a large proportion of the population who would otherwise be adding to the country's unemployment burden. Some operators of the three-wheelers say they would be happy to obtain a licence if given the opportunity as it is a means of self-sufficiency.

Import Ban To Derail Recovery?
Egypt Unemployment ('000, LHS And % chg y-o-y, RHS)

In their favour is the fact that tuk-tuks have been taxed as taxis since 2012, which they could argue is some form of recognition. This taxation would also mean a loss of tax revenue for the government if the ban was implemented. Moreover, the service provides an affordable means of transportation for many, who might also be forced out of work if they cannot find an alternative means of commuting. That said, existing vehicles are likely to be left out of the ban.

It would also mean a hit to the country's biggest automotive firm, Ghabbour Auto (GB Auto), which imports semi-knocked down (SKD) kits from India's Bajaj Auto for assembly and distribution in the country. This line of business accounted for 13% of the company's revenues in 9M13, not to mention its financing arm, Mashroey, which provides loans for three-wheeler purchases, enabling people to operate a tuk-tuk. Indeed, the timing could not be much worse as GB Auto's combined financing businesses posted a 92.8% year-on-year increase in revenues in 9M13.

Another argument is that by stopping people operating a tuk-tuk service, the government runs the risk of exacerbating the crime problem it is looking to solve through the ban. The government has claimed the ban is a safety measure, as a growing number of crimes are committed by owners of unlicensed motorcycles, especially the three-wheelers which are favoured by criminals for their small size. On the other hand, it has been argued that allowing people to earn a living with a tuk-tuk keeps them from committing crime to support themselves.

However, we see potential support for the ban being generated by the recent tourist attack in Sinai. Although our Country Risk team believes a singular event will not be enough to deter tourists, the government could use the event to suggest a ramp-up in security measures is required. As a segment already earmarked as a threat to public safety, it could become a much easier decision to make. That said, it would need to be balanced with the potential for much higher unemployment, which is already a sensitive political issue, as well as a hit to one of the country's biggest manufacturing companies and its employees.

This article is tagged to:
Related sectors of this article: Autos, Motorcycles
Geography: Egypt

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