Close button
The Guardian
Email YouTube Facebook Instagram Twitter WhatsApp

Reliance on used vehicles importation hinders African market

Related


•As Nigeria’s automotive policy suffers setback
Reliance on used vehicles is hindering growth of Africa’s automobile market. This is projected to escalate for sub-Saharan Africa (SSA) in the next 15 years, implying that Africa’s demand for vehicles will likely continue to be met by other continents in the foreseeable future.

This was contained in a White Paper, by World Economic Forum (WEF), in collaboration with Deloitte, titled: “Connecting countries and cities for regional value chain Integration,” released on Tuesday.

Trade in used vehicles has variable effects on producers of new vehicles. In low-income countries (LIC), used-car imports often lead to depressed sales and lower prices for new vehicles, while in high-income countries (HIC) the effects may be trivial.

In 2016, well over 96 per cent of vehicles imported into Kenya were second-hand, while 80 per cent of all sales in both Ethiopia and Nigeria were used vehicle imports. In addition, three-quarters of vehicles in SSA are second-hand vehicles, with the region importing more pre-owned vehicles (764,880 units) than new (734,084 units) in 2017.

Meanwhile, Nigeria’s National Automotive Industry Development Plan (NAIDP), currently undergoing review by the present administration has received no attention in the last two years.

x

The NAIDP Bill, popularly known as Auto Policy, is central to the development of the automotive industry, which is said to be currently underperforming.
The NAIDP represents the Federal Government’s boldest step at reviving local car assembly in over three decades. The policy, which was introduced in 2014, seeks to encourage local manufacture of vehicles while phasing out the importation of used vehicles. Other motives of the policy include job creation, stimulation of the value chain, diversification of the economy, provision of affordable vehicles for the average Nigerian, as well as boosting foreign direct investment into the country.

Concerned about poor implementation of some of the policies, particularly the NAIDP, stakeholders expressed the belief that Federal Government’s inaction towards the automotive policy is inhibiting the potentials of the sector.

Given the income levels of African countries, the paper revealed that used-car imports indisputably affect new vehicle producers negatively, stating that it is important for African countries that aspire to develop their automotive sector but are currently susceptible to used-vehicle imports to consider reviewing or enacting their used-vehicle import controls with caution.

This will ensure that the used vehicles manufactured in other continents do not impair Africa’s ability to produce new vehicles. Some of the stakeholders, who spoke to The Guardian, said the auto policy has literally addressed the shortfall of the new tariff regime and expressly stated that for the policy to materialise, the importation of cars through land borders should be banned.

Chief Executive Officer of West Atlantic Cold-Chain and Commodities Limited, Henrii Nwanguma, said policy continuity is good, but review to correct course in the light of present realities is best. “Let’s not pretend the auto policy is a perfect document. Besides, there is provision for its review every 5 years. It is two years overdue,” he said.

Nwanguma noted that the biggest challenge is meeting the 700,000-vehicle deficit legally or continuously lose revenue to rampant smuggling.

According to him, the 700,000 vehicle gap between locally produced vehicles and demand must be filled with imports (new and used). The argument recently presented by the Minister of Finance for the downward tariffs and levies review for commercial vehicles, passenger buses and agricultural tractors is sound based on realities.

He said this is a temporary relief to help force down the cost of passenger and goods flow in the economy. The private sector will respond and the good old market forces will crash transport costs. But they must extend this incentive to auto parts and consumables too.

In his words: “Since the seven-year-old auto policy is being reviewed due to its obvious failure to close the gap, it is an opportunity to look at our country’s overall industrial policy. Are we really ready to attract and sustain investments into local production of goods? Are the enablers like steel, petrochemicals, and the like, in addition to manpower and other fiscal and monetary incentives there?”

He said the industry stakeholders aided by financial services also need to begin to help itself by massive introduction of consumer credit. It must take a longer-term view to vehicle ownership from their stable and creatively craft ways to encourage uptake.

x

“Planes, ships and trains that carry our passengers and freight are not made here but still deliver value to the economy. I hate to say this but if we’re going to buy Nigerian, then it must be for the right reasons. Beyond our local star, Innoson Vehicles Manufacturing and some of its components suppliers, there’s hardly any activity by others beyond assembly. I’m not sure it’s the intendment of our Auto policy,” he said.

Dean, School of Transport, Lagos State University (LASU), Prof. Samuel Odewumi, said frequent policy somersaults is inimical to any sector. Be that as it may, used vehicle importation is a child of necessity. The natural thing is for anyone to desire a new vehicle, but when the prices of brand new vehicles are beyond the reach of average citizens, they resort to “tokunbo.”

Odewumi said the implication is that the local assembly plants will be adversely affected. However, there is a caveat that government agencies should uptake their products such that they will they will not be having unsold stocks. The problem is that the government agencies are not obeying these directives. Take the example of the legislature that refused to patronize local manufacturers.

The university don said the most critical issue is how to persuade government’s agencies to patronise the local manufacturers as the logic of government is that the total output of the local manufacturers is not adequate to take care of the local demand thus creating some artificial scarcity and high prices for Nigerians.

Despite the need to scale the African market for new vehicles, the paper highlighted some key constraints on buying new vehicles, such as the limited financing options available in markets.

Less than 30 per cent of vehicles are financed, as seen in Kenya (29 per cent), Ghana (27 per cent) and Nigeria (12 per cent). This is because most vehicles that are not financed are imports, which are not sold at market-related prices (rather, they are sold cheaply in their countries of origin).

This makes it difficult for vehicle financiers and insurance companies to determine the true value of the assets and the truly reflective costs for vehicle finance and insurance. Thus, many financiers and insurers may be reluctant to offer vehicle finance or insurance. Vehicle importation is also a difficult shift, as the taxes earned range from 10 per cent to 50 per cent of the customs value.

This annuity income often accounts for the second-largest value on the balance of payment due to foreign exchange (forex) adjustments. In 2019, Ghana banned the importation of cars more than 10 years old in effort to encourage carmakers to set up factories, and Kenya is expected to make a similar pronouncement as part of its automotive investment plan.

According to the report, a paradigm shift is required among trade facilitation technocrats to support the administration at large, and enable politicians to appreciate the long-term sustainable value that can be created in developing a competitively productive automotive sector as opposed to relying on pre-owned vehicle imports.

x

While Africa’s automotive market is still underdeveloped, the potential of the automotive industry in Africa must be recognized, and growth across the automotive value chain including vehicle sales, after sales, vehicle assembly and production is evident.

While emphasising on hub-and-spoke model for SSA automotive pact development, the paper stated that the SSA Automotive Pact (Auto Pact) is the brainchild of a coalition of industrialists and economists who saw the possibility that vehicle manufacturing could be a catalyst for the industrialization of South Africa – as it was for Germany.

While South Africa is the leading market for vehicle manufacturing on the continent, trends from 2015 onwards have shown that Ethiopia, Nigeria and Kenya are gearing their economies to realize the potential of a stronger automotive sector. This is timely given the rising middle class and growing industrialization of the agricultural and mining sectors.

The development of the Auto Pact has highlighted the need to focus on markets that can create scale of production. Trade economists say that to create a feasible complete knock-down (CKD) operation, a minimum of 300,000 vehicles of a model must be produced. Therefore, understanding how local demand can be encouraged in a sustainable manner is very important.

The automotive industry is on the cusp of an evolution, with advances in electric and autonomous vehicles and transformations in mobility. As Africa builds its automotive industry, the paper stressed the need for the continent to focus on development that promotes innovation and drives adoptions that will be sustainable for the growth and development of the sector.

x


Receive News Alerts on Whatsapp: +2348136370421

No comments yet