CAIRO (Reuters) - Grimy old Fiats and Ladas have long been a defining feature of Cairo's creaking taxi fleet, clogging the city's streets and sputtering out fumes.
Now the scruffy black-and-white cabs are giving way to metered, air-conditioned cars assembled in Egypt using kits from firms like General Motors, Hyundai of South Korea and China's Chery. Taxis under the French brand Peugeot originate from factories in Iran.
This transformation is all part of a government-backed renewal plan aimed at changing the face of the Egyptian capital.
The program has boosted sales for Egypt's vehicle makers, hit hard by the global downturn. It is also creating a smarter image for tourists, a mainstay of Egypt's economy, while making a start at tackling choking pollution in the capital.
Civil servant Ibrahim Abdel Razeq, 36, like many of Egypt's poorly paid government employees, works two jobs. The scheme meant he could borrow for a cab to drive.
"I earn 388 Egyptian pounds ($67) a month in my (day) job, which is not enough to provide for my family's needs, so I had to work in this taxi in the evening to supplement my income."
The program, launched in April 2009, came as a welcome fillip to Egyptian firms. It only covers cars assembled in Egypt, although the kits to build them are foreign.
"The program was launched during the downturn of the economy and helped local automakers during the crisis," said Mohamed Abdel Aziz, an official from the Finance Ministry.
It's not only the taxi fleet being renewed. Demand from private buyers has gained momentum, reflecting greater spending power of Egyptian consumers, buoyed by sturdy economic growth. Though the demand slid during the world financial crisis.
"2009 was a bad year because of the recession," said Beltone consumer goods analyst Kamal Khedr. "Now, Egyptians are buying again, and it is notable in cars."
Under the Finance Ministry's taxi program, drivers can replace taxis that are 20 years old or more, earning 5,000 pounds for the most clapped-out wreck and receiving a loan from one of Egypt's state-run banks for a new vehicle.
Perks include tax exemptions on imported parts and repayment of loans by installments at a modest rate of interest over five years. In future, repayment will be possible over seven years.
Under the plan, the ministry aims to replace 50,000 of Cairo's fleet of 70,000 taxis. The ministry has earmarked a budget of 560 million pounds for the program's first two years of operation.
Beneficiaries include GB Auto, Egypt's biggest listed car assembler, which supplied 64 percent of the new taxis in September, up from 52 percent at the start of 2010.
GB Auto distributes and assembles vehicles supplied by international firms. It has tie-ups with companies such as Bajaj Auto Ltd, Hyundai, Mazda Motor Corp, Mitsubishi Motors Corp and Volvo AB.
Passenger car demand in Egypt overall is growing, driven by robust economic growth of around 6 percent, the taxi plan and relatively low car penetration. Beltone investment bank says there are about 30 cars per 1,000 people in Egypt, versus about 108 in South Africa, 90 in Turkey and 73 in Tunisia.
Passenger car sales were about 134,000 in 2006 and peaked at 199,000 in 2008, before falling in the financial crisis. Beltone forecasts sales of 194,000 in 2010, back near 2008 levels, and 220,000 and 250,000 in 2011 and 2012.
"We are expecting the market to continue to witness double digit growth in the coming years," Beltone's Ahmed Khalil said.
"People are becoming wealthier in some parts of the population and more banks are offering consumer finance," Khalil said, adding that in Egypt's traditionally cash economy people were more willing to take on debt.
Meters in the old cabs usually don't work but, if they do, they are routinely ignored because they have not been recalibrated to keep up with soaring inflation.
Haggling has long been common, either over the price before the journey or at the end over how much a cabby deserved, regardless of how clunky the ride or scruffy the seats.
That ritual has changed with the new white cabs, with their smart checkered line down the middle. They have working meters that are regularly reset with official oversight.
"I prefer to hail a white taxi because that way I know exactly how much to pay for the fare and also because drivers are often more polite," said housewife Nagwa Mahmoud, 54.
Cairenes have also been won over by the novelty of a cab where air-conditioning doesn't mean simply opening a window -- often a challenge in old vehicles where handles are often bust.
"The taxi is air-conditioned which helps encourage me to do more trips during the summer months. The meter also significantly decreased arguments with customers over the fare price," said Yehia Mahfouz, a 32-year-old cabby.
The scheme is helping clean up Cairo's image for tourists. Millions visit Egypt each year, often passing through the capital to see the pyramids on the city outskirts. The industry accounts for 11 percent of Egypt's gross domestic product.
"We want to upgrade the entire taxi service and have a better look especially for tourists who complain about the service," the ministry's Abdel Aziz said.
The scheme has done nothing to ease the traffic jams that cause the city to seize up on a daily basis. The government is partly trying to tackle those by adding news buses and metro routes. The city of 20 million has just two metro lines now.
But newer cars mean gridlocked vehicles are not spewing out so much poisonous exhaust in a city where a haze of smoke and dust hangs over the capital for most days of the year.
"Starting April until September 2009, the percentage of reduction of carbon emission was about 22 percent. And within eight years from the program launch, we expect carbon dioxide emissions to be reduced by 2 million tonnes," Abdel Aziz said.
He said the ministry aimed to have the program endorsed by the U.N.'s Clean Development Mechanism (CDM).
Under the CDM, worth some $20 billion in 2009, companies and governments can invest in carbon-cutting projects in emerging economies and in return receive offset credits which can be used against their own emissions.
Scrapping the black-and-white cabs is sad for some as they say goodbye to vehicles that needed endless attention to stay on the road, like Hamdy Abeid, 46, who got rid of his 1983 Lada.
"It was a difficult day for me. I took several photographs of my old taxi. It brought a lot of good memories. It helped finance my marriage and drive my children to school every day."
Additional reporting and editing by Edmund Blair