Samsung's Ambitious Targets For Egyptian Factory Highlights Regional Growth Potential
Samsung Electronics has set a sales target of US$1bn for consumer electronics (CE) products manufactured in its Egyptian factory. Samsung Egypt's managing director, Seung-ho Yun, revealed that the company also plans to increase its production capacity from around 3mn TV and computer screens annually to around 8mn screens with the next five years. Although Egypt's political and economic challenges weigh heavily on domestic demand for high-end CE products, Samsung is set to benefit from growing demand from other countries in the region experiencing strong private consumption growth and real estate booms.
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Samsung started production at its factory in Egypt in September 2013, one year after announcing plans to invest US$280mn in the project. The facility was designed to leverage Egypt's location and skilled workforce to serve the entire Middle East and North Africa (MENA). The first phase of the facility focuses on the production of flat-screen TVs and computer monitors, two of Samsung's strongest-performing products in the region. Subsequent phases could add several more factories, with total investments of up to US$1.5bn.
Although Egypt has a large domestic market, given the country's population of around 80mn, Samsung's main targets are consumers and businesses in the wealthier Gulf countries in the region. These markets are characterised by high replacement rates for CE products, high disposable incomes on the back of recent wage increases, and strong growth in real estate and hotel accommodation projects. Furthermore, the region's CE market is set to record strong growth over the next decade in the run up to the 2020 World Trade Expo in Dubai and the 2022 FIFA World Cup in Qatar. Samsung is well placed to win major procurement tenders in preparation for these events with its local presence.
BMI believes that Samsung's capacity expansion plans and ambitious revenue targets are indicative of impressive growth in its Egypt project in just six months of operation. It also reflects the growth outlook for the CE sector in MENA as highlighted in BMI's forecast. Although other vendors have established major distribution hubs in the region to take advantage of the growth opportunities, BMI expects Samsung, which controls more than 40% of the region's smart TV market, to remain an outperformer based on the localisation of its products and marketing partnerships with regional content providers and broadcasters.