Smartphone production is back on the table

Electronics companies are reviving their plans to manufacture smartphones locally: With the FX crunch now behind us and manufacturer concerns about importing production materials beginning to ease, electronics firms are now moving again to locally produce smartphones.

ICYMI- We looked at the state of Egypt’s smartphone industry in a two-part Inside Industry series last October, here and here.

The market has come a long way since the first homegrown smartphone producer cropped up six years ago: Sico Technology debuted the first locally produced smartphone back in 2018. In the years since, the government has been working over the past several years to localize the country’s electronics manufacturing industry, launching a number of measures and incentives including the Information Technology Industry Development Agency’s (ITIDA) Egypt Makes Electronics (EME) initiative, the elimination of development fees for imported smartphone components, and tech parks.

Egypt now has eight electronics firms producing their smartphones locally, including Xiaomi, Vivo, Oppo, Infinix, Nokia, and Samsung.

It’s a huge market: Egypt enjoys favorable demographics that create a large consumer market, with some 102.9 mn mobile phone plan users as of April 2023, according to CIT Ministry data. Smartphone ownership is also on the rise in the country, according to a BMI report (pdf). The growth in ownership numbers comes “as first-time buyers enter the market, but this flow is mainly from low-income areas where consumers are highly price-sensitive,” BMI says in the report. “There is also scope for vendors to develop a higher value sales mix as incomes rise over the medium-term, with an increased share for mid-range and premium smartphones as purchasing power increases for the middle-class.”

With smartphone imports plummeting, it’s time to turn inwards to local production: With our recent FX crunch, Egypt’s imports of smartphones dropped to USD 5.24 mn by the end of 2023, down 98.5% y-o-y. The government is now looking to localize 40% of smartphone production, meaning that 40% of total manufacturing inputs — including components, design, development, and software — will be sourced locally.

We have solid potential when it comes to producing smartphones locally: The government is offering plenty of incentives, including tax exemptions and easing import restrictions for components, KMG Egypt CEO and head of the Federation of Egyptian Chambers of Commerce’s Digital Economy division Karim Ghoneim told Enterprise. MPs also voted last year to slash customs duties and eliminate development fees on imported mobile phone components in a bid to boost manufacturing and localize the industry. Under the amendments, the 5% state development fee is no longer applied to components, while customs tariffs were cut to as low as 0% for some items.

And things are moving forward as shipments previously stuck at ports are now getting through: The Customs Authority has begun releasing imports of production requirements that were stuck at ports, which puts KMG Egypt on track to begin producing after Eid El Fitr at its Sadat City industrial zone factory, Ghoneim said. The company plans to start production with smart watches, before moving forward with feature phones and smartphones at later stages, Ghoneim told us. Other local firms are also getting their imports cleared from customs, according to General Manager of Al Safi Group’s Mobilaty, Khaled Fahmy.

International players are also picking up the pace: Samsung is now pushing ahead to complete the construction of its new factory in Beni Suef, after facing some delays as it waited on imports of construction materials and equipment, a company source told Enterprise. The company doesn’t see a significant issue with the investment cost of its new factory, the source said, adding that the main impediment was the availability of FX to allow for imports.

The priority now is going towards exports: The current priority for both KMG Egypt and Samsung is speeding up production to increase supply in the local market and shift more towards exports, Ghoneim and our source at Samsung said. The companies are both looking at export markets in Europe and Asia.