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Auto giants battle used car dealers for Africa’s huge market

Auto giants battle used car dealers for Africa’s huge market

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JOHANNESBURG/NAIROBI (Reuters) – On the fringe of Nairobi’s Ngong Forest, hundreds of used automobiles glitter within the scorching solar on a dusty area, ready for patrons.

The Mobius II first technology SUV by Kenyan automobile maker Mobius Motors is seen within the firm’s present room in Nairobi, Kenya March 6, 2019. REUTERS/Baz Ratner

Imported from Japan or the Center East, they provide an reasonably priced 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 fast development as commerce tensions threaten gross sales elsewhere. African shoppers additionally nonetheless want typical 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 cut back the imports which have made sub-Saharan Africa notoriously troublesome terrain and permit native manufacturing to flourish.

“The query on Africa isn’t, ‘Is it a market of the long run?’” Mike Whitfield, Nissan’s prime govt for Africa, advised 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 vegetation might get tax holidays of as much as 10 years and responsibility exemptions in Nigeria, Kenya and Ghana, based on authorities plans seen by Reuters.

Thomas Schaefer, who heads Volkswagen’s Africa enterprise, stated 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 decreasing the value of latest automobiles.

“It would largely depend upon how profitable the African governments are in limiting the quantities of second-hand imports and the way price-competitive new autos could be with their tariffs,” stated Craig Parker, Africa analysis director at Frost & Sullivan, a U.S.-based market analysis agency.


Africa’s inhabitants and family incomes are rising quickly. However its 1 billion inhabitants account for just one % of the world’s new passenger automobile gross sales, trade information reveals. South Africans purchased over 85 % of these autos.

The AAAM recognized Kenya, Nigeria and Ghana as potential manufacturing hubs and helped draft laws organising requirements and incentives.

Particulars of governments’ plans offered to Reuters exhibit that African nations are eager to safe a spot as a beachhead for the trade.

Nigeria and Ghana are making ready to supply automakers tax holidays of as much as 10 years and duty-free imports of components and elements utilized in native meeting. Nigeria additionally plans to double the levy on new, fully-built imported autos to 70 % 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 going through huge demographic pressures, such concessions make sense in the event that they create jobs, stated Jelani Aliyu, of Nigeria’s Nationwide Automotive Design and Growth Council.

“The multiplying results are exponential,” stated Aliyu, who foresees supporting industries growing across the vegetation.

Legislative and financial frameworks are being finalised, however corporations are already investing thousands and thousands of in new vegetation.

VW and Nissan have arrange operations in Nigeria, Kenya and Ghana or have pledged to take action. Honda and Peugeot have launched meeting vegetation in Nigeria, and Peugeot has carried out 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 govt Andrew Kirby stated 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 for the time being because of the greater costs of EVs and unreliable energy grids.

Simply 66 electrical automobiles had been offered final 12 months in South Africa – the continent’s most developed economic system.

“Africa will probably stay because the final bastion of inner combustion engines,” Parker stated.


However, trade officers say the largest hurdle to growing the marketplace for new automobiles is dumping from international locations resembling Japan, the place strict car inspections drive 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 various African international locations together with Nigeria, which constructed round 150,000 automobiles per 12 months till the 1980s.

Political will is required to vary that, and with out it there may be little level in contemplating a rustic for native manufacturing, based on VW’s Schaefer.

“The markets … are actually not functioning proper now because of importation of used autos,” he stated.

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 worth, based on the 300-member Kenya Auto Bazaar Affiliation (KABA). The foyer group has taken out advertisements in native newspapers denouncing the coverage and is demanding a gathering with Kenya’s president.

Mark Oburu, KABA’s vice-chairman, stated the transfer would hit an trade that delivers 85 % of Kenyan automobile purchases.

“The center class won’t be able to personal a car of their alternative,” he stated.

Within the Nairobi bazaar, Grace was looking for her eldest son’s first automobile. She stated 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 deal with the difficulty. Nigeria hiked taxes on imported used automobiles in 2014, however smuggling has undermined that effort to spice up demand for native manufacturing, based on 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 obstacles: entry to financing is proscribed, and international locations that don’t host meeting vegetation 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 consequence they see is greater sticker costs.

“The aim is to not take probably the most profitable slice of the trade,” stated Ghana’s minister of commerce and trade, Alan Kyerematen, suggesting that neighbors might produce elements for his nation’s meeting vegetation.

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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 had been decrease than in lots of African markets. At present, these two corporations alone promote over three.5 million autos yearly in China.

“All people was laughing, saying China doesn’t want automobiles, they solely want bicycles,” Schaefer stated.

Joe Bavier and Emma Rumney reported in Johannesburg and Duncan Miriri in Nairobi; Extra reporting by Clement Uwiringiyimana in Kigali and Chijioke Ohuocha in Lagos; Modifying by Alexandra Zavis and Anna Willard

Our Requirements:The Thomson Reuters Belief Ideas.

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