Auto giants battle used automobile sellers for Africa's big market

On the fringe of Nairobi’s Ngong Forest, 1000’s of used automobiles glitter within the sizzling solar on a dusty area, ready for consumers.
Imported from Japan or the Center East, they provide an inexpensive path to car possession in Kenya and have dominated the marketplace for a long time.
That’s an impediment huge carmakers should overcome if they’re to crack Africa, a market promising speedy development as commerce tensions threaten gross sales elsewhere. African shoppers additionally nonetheless want standard engines simply as demand in additional conventional markets is curbed by restrictions on carbon emissions.
Volkswagen, BMW, Toyota, Nissan and others have joined forces to foyer governments for steps that would scale back the imports which have made sub-Saharan Africa notoriously tough terrain and permit native manufacturing to flourish.
“The query on Africa isn’t, ‘Is it a market of the longer term?’” Mike Whitfield, Nissan’s high government for Africa, instructed Reuters. “It’s a case of when.”
4 years after forming the Affiliation of African Automotive Producers (AAAM) their efforts are beginning to bear fruit. Carmakers that arrange native meeting crops might get tax holidays of as much as 10 years and obligation exemptions in Nigeria, Kenya and Ghana, in keeping with authorities plans seen by Reuters.
Thomas Schaefer, who heads Volkswagen’s Africa enterprise, mentioned there’s a potential market in sub-Saharan Africa for Three to four million new automobiles, up from simply 420,000 in 2017.
However that may require addressing the well-entrenched pursuits of second-hand automobile sellers, smugglers and reducing the worth of recent automobiles.
“It can largely rely on how profitable the African governments are in limiting the quantities of second-hand imports and the way price-competitive new autos will be with their tariffs,” mentioned Craig Parker, Africa analysis director at Frost & Sullivan, a U.S.-based market analysis agency.
MULTIPLYING EFFECTS
Africa’s inhabitants and family incomes are rising quickly. However its 1 billion inhabitants account for only one p.c of the world’s new passenger automobile gross sales, business information reveals. South Africans purchased over 85 p.c of these autos.
The AAAM recognized Kenya, Nigeria and Ghana as potential manufacturing hubs and helped draft laws establishing requirements and incentives.
Particulars of governments’ plans supplied to Reuters reveal that African nations are eager to safe a spot as a beachhead for the business.
Nigeria and Ghana are getting ready to supply automakers tax holidays of as much as 10 years and duty-free imports of components and parts utilized in native meeting. Nigeria additionally plans to double the levy on new, fully-built imported autos to 70 p.c to spice up demand for domestically produced automobiles, although the coverage’s approval has been delayed.
In Kenya, automakers can pay no import or excise duties and get a 50-percent company tax break.
For African nations dealing with large demographic pressures, such concessions make sense in the event that they create jobs, mentioned Jelani Aliyu, of Nigeria’s Nationwide Automotive Design and Improvement Council.
“The multiplying results are exponential,” mentioned Aliyu, who foresees supporting industries creating across the crops.
Legislative and monetary frameworks are being finalised, however firms are already investing tens of millions of {dollars} in new crops.
VW and Nissan have arrange operations in Nigeria, Kenya and Ghana or have pledged to take action. Honda and Peugeot have launched meeting crops in Nigeria, and Peugeot has completed the identical in Kenya.
Carmakers sorely want the enterprise. Their South African divisions, which usually direct operations elsewhere on the continent, face stagnating home gross sales and scant development prospects of their important export market, Europe. A chaotic Brexit or U.S. tariff hikes might additional dampen gross sales.
Toyota South Africa’s chief government Andrew Kirby mentioned the technique is: “Give attention to Africa as a result of Africa goes to develop considerably.”
A pivot to Africa might additionally assist insulate automakers from the rapid results of the electrical car revolution. The continent is ill-placed to affix it in the meanwhile because of the greater costs of EVs and unreliable energy grids.
Simply 66 electrical automobiles have been offered final yr in South Africa – the continent’s most developed financial system.
“Africa will more than likely stay because the final bastion of inside combustion engines,” Parker mentioned.
DISTORTED MARKET
Nonetheless, business officers say the most important hurdle to creating the marketplace for new automobiles is dumping from international locations similar to Japan, the place strict car inspections pressure automobiles out of circulation after just some years.
They are saying this distorts the market by permitting sellers to purchase the automobiles at scrap costs and export them to Africa.
They blame a budget imports for killing off meeting sectors in quite a lot of African international locations together with Nigeria, which constructed round 150,000 automobiles per yr till the 1980s.
Political will is required to alter that, and with out it there’s little level in contemplating a rustic for native manufacturing, in keeping with VW’s Schaefer.
“The markets … are actually not functioning proper now because of importation of used autos,” he mentioned.
In Kenya, the federal government plans to wind down imports of automobiles greater than three years outdated by 2021. Exceptions will probably be made for passenger autos with 1.5 liter or smaller engines.
The coverage might see mid-range imported fashions double in value, in keeping with the 300-member Kenya Auto Bazaar Affiliation (KABA). The foyer group has taken out adverts in native newspapers denouncing the coverage and is demanding a gathering with Kenya’s president.
Mark Oburu, KABA’s vice-chairman, mentioned the transfer would hit an business that delivers 85 p.c of Kenyan automobile purchases.
“The center class won’t be able to personal a car of their alternative,” he mentioned.
Within the Nairobi bazaar, Grace was looking for her eldest son’s first automobile. She mentioned she couldn’t afford to purchase a brand new one.
“In the event that they don’t rescind that call, we will probably be on boda bodas (motor-bikes).”
Each Ghana and Nigeria have additionally pledged to sort out the problem. Nigeria hiked taxes on imported used automobiles in 2014, however smuggling has undermined that effort to spice up demand for native manufacturing, in keeping with producers and authorities officers.
Used automobiles are additionally among the many main imports in lots of African international locations, and governments should wean themselves off the related tax revenues.
There are different hindrances: entry to financing is proscribed, and international locations that don’t host meeting crops should even be persuaded to restrict used imports and scale back tariffs on African-made autos. That will probably be laborious to do if the one end result they see is greater sticker costs.
“The aim is to not take essentially the most profitable slice of the business,” mentioned Ghana’s minister of commerce and business, Alan Kyerematen, suggesting that neighbors might produce parts for his nation’s meeting crops.
Auto executives acknowledge the challenges however level to a well-known precedent. When VW and GM entered China within the 1980s and 90s, car possession charges have been decrease than in lots of African markets. As we speak, these two firms alone promote over 3.5 million autos yearly in China.
“Everyone was laughing, saying China doesn’t want automobiles, they solely want bicycles,” Schaefer mentioned.