Automotive market conditions in Sub-Saharan Africa

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Kenya is among the top countries in Sub-Saharan Africa with the largest new-vehicle markets. A number of automotive manufacturers have recently committed to increase production activity in the country.

Earlier this year, France’s Peugeot announced plans to restart production in Kenya, having halted manufacturing operations in Kenya 15 years ago. The firm will produce 1000 of its “508” and “3008” models in its first year, with distribution to be managed by domestic company URYSIA.

The news came on the back of Germany’s Volkswagen inaugurating a new production facility in Thika outside Nairobi at the end of 2016.

In a move to boost local manufacturing, the government last year announced exemptions on tariffs applied to imports of unassembled vehicles.

Under the new scheme, complete knock-down (CKD) kits are waived from the 25% import duty and 20% excise levy that applies to fully built imports, meaning that locally manufactured cars have a strong price advantage.

A number of companies with assembly operations in Kenya – including Japan’s Toyota and US-based General Motors – are also looking into applying for the incentives, which have so far only been approved for Volkswagen.

However sluggish economy caused by lower commodity prices has hit the sector with vehicle sales plummeting to only 6,946 units in the first half of 2016. The decline was the first time in five years, with the decrease blamed on the Excise Duty Act of 2015, which set a tax of Sh200,000 ($1930) for imported vehicles more than three years old and Sh150,000 ($1450) for newer models.

The new taxes replaced a 20% tariff based on a vehicle’s value, meaning that popular budget models saw large price increases. However, following lobbying by the Kenyan Association of Manufacturers as well as a number of other sector stakeholders, the old regime was reinstated in mid-2016.

Away from Kenya, the drop in global oil prices has also negatively impacted the Nigerian automotive market with only 21,270 units sold in the first half of calendar-year 2016.

The automotive market in Sub-Saharan Africa faces many challenges, including insufficient availability of capital, but also a limited skills employment base and risks due to political instability.

The biggest fleet challenge is vehicle funding. With the softness in pricing for commodities, a key economic engine with many Sub-Saharan economies, local banks are selective in lending and the availability of funds has become a challenge. With the shortage of liquidity, companies are reluctant to tie up working capital in non-core assets.

A growing segment of the commercial vehicles market is low-cost vehicles from Chinese and Korean OEMs. Currently, most commercial vehicles in Africa are imported either from Europe or Asia.

South Africa is the industry leader and has the largest market of commercial vehicles in Africa. The corporate fleet market in South Africa is estimated at 1.2 million vehicles.

The main service providers in South Africa are ABSA Vehicle Management, Avis Fleet Services, Bidvest, Daimler Fleet Management, Eqstra Fleet Management, Fleet Africa, Imperial Fleet Services, Liquid Capital, Standard Bank, and Wesbank.

According to SAVRALA, there are 29 brands in the South Africa market, with the top five brands being Toyota, Volkswagen, Nissan, KIA, and Hyundai.