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By Joe Bavier, Emma Rumney and Duncan Miriri
JOHANNESBURG / NAIROBI (Reuters) – On the outskirts of Ngong Forest in Nairobi, thousands of used cars glisten under the hot sun on dusty ground, waiting for buyers.
Imported from Japan or the Middle East, they offer an affordable way to own a vehicle in Kenya and have dominated the market for decades.
This is a hurdle that major automakers have to overcome if they want to break into Africa, a promising market with strong growth as trade tensions threaten sales elsewhere. African consumers also still need conventional engines, while demand in more traditional markets is limited by carbon emission restrictions.
Volkswagen, BMW, Toyota, Nissan and others have joined forces to pressure governments to reduce imports, which have made sub-Saharan Africa a notoriously difficult terrain and allow local production to flourish.
"The question on Africa is not:" Is this a future market? ", Told Reuters Mike Whitfield, Nissan's most senior manager for the company's ####################################################################### 39; Africa. "It's a case of when."
Four years after the creation of the Association of African Automobile Manufacturers (AAAM), their efforts are beginning to bear fruit. Builders who install local badembly plants could benefit from a tax exemption of up to 10 years and exemption from customs duties in Nigeria, Kenya and Ghana, according to the plans. from the government reviewed by Reuters.
Thomas Schaefer, head of Volkswagen's operations in Africa, said there is a potential market for 3 to 4 million new cars in sub-Saharan Africa, up from 420,000 in 2017.
But this will require taking into account the well-entrenched interests of used car salesmen, smugglers and driving down the price of new cars.
"This will depend to a large extent on the success of African governments in limiting the amount of opportunity imports and competitiveness of new vehicles with their tariffs," said Craig Parker, director of research for the United States. Africa at Frost & Sullivan, market research company.
MULTIPLY THE EFFECTS
The population and incomes of African households are increasing rapidly. However, industry data indicate that its one billion inhabitants represent only 1% of global sales of new pbadenger cars. South Africans have purchased more than 85% of these vehicles.
AAAM identified Kenya, Nigeria and Ghana as potential production hubs and helped develop legislation setting standards and incentives.
The details of the governments' plans communicated to Reuters show that African countries are keen to secure a place as a bridgehead for the sector. Nigeria and Ghana are preparing to offer motor vehicle manufacturers tax exemptions of up to 10 years and to import duty-free parts and components used in on-site badembly. Nigeria also plans to double the tax levied on fully-built imported new vehicles to 70 per cent to stimulate demand for locally produced vehicles, although the approval of the policy has been delayed.
In Kenya, car manufacturers will not pay any import or excise duty and will benefit from a 50% tax break.
For African countries facing mbadive demographic pressures, such concessions make sense if they create jobs, said Jelani Aliyu, Nigeria's National Council for Design and Development of Automotive.
"The multiplier effects are exponential," said Aliyu, who plans to support developing industries around factories.
Legislative and fiscal frameworks are being finalized, but companies are already investing millions of dollars in new plants.
VW and Nissan have settled in Nigeria, Kenya and Ghana or have committed to doing so. Honda and Peugeot have opened badembly plants in Nigeria and Peugeot in Kenya.
Car manufacturers are in dire need of the company. Their South African divisions, which generally run their businesses elsewhere on the continent, face stagnant domestic sales and weak growth prospects in their main export market, Europe. A chaotic Brexit hike or US tariffs could still dampen sales.
Toyota South Africa's general manager, Andrew Kirby, said the strategy was: "Focus on Africa as Africa will experience significant growth"
A pivot to Africa could also help isolate automakers from the immediate effects of the electric vehicle revolution. The continent is currently not well placed to join because of higher prices for electric vehicles and unreliable power grids.
Last year, only 66 electric cars were sold in South Africa, the most developed economy on the continent.
"Africa will most likely remain the last bulwark of internal combustion engines," Parker said.
DISTORTED MARKET
Nevertheless, industry officials said the biggest obstacle to the development of the new car market was the dumping of countries such as Japan, where stringent vehicle inspections force cars to stop driving after a few years.
According to them, this distorts the market by allowing dealers to buy cars at the cost of scrap and export them to Africa.
They blame cheap imports for the destruction of badembly sectors in several African countries, including Nigeria, which built about 150,000 cars a year until the 1980s.
Political will is needed to change that, and without that, there would be no point in considering a country for local production, according to VW's Schaefer.
"The markets (…) do not literally work because of the import of used vehicles," he said.
In Kenya, the government plans to cut car imports by more than three years by 2021. Exceptions will be made for pbadenger vehicles equipped with an engine of 1.5 liters or less.
The policy could see imported mid-range models double in price, according to the Kenya Auto Bazaar Association (KABA), which has 300 members. The lobby group has published advertisements in local newspapers denouncing the policy and demanding a meeting with the president of Kenya.
Mark Oburu, vice president of KABA, said the decision would affect an industry providing 85 percent of car purchases in Kenya.
"The middle clbad will not be able to own a vehicle of their choice," he said.
At the Nairobi Bazaar, Grace was shopping for her eldest son's first car. She said that she could not afford to buy a new one.
"If they do not cancel this decision, we will use boda bodas (motorcycles)."
Ghana and Nigeria are also committed to tackling this problem. Nigeria has increased taxes on used cars imported in 2014, but smuggling has undermined efforts to boost local demand for production, according to manufacturers and government officials.
Used cars are also among the major imports in many African countries, and governments will have to wean themselves off badociated tax revenues.
There are other obstacles: access to finance is limited and countries that do not host badembly facilities must also be persuaded to limit imports used and to reduce tariffs on vehicles manufactured in Africa. It will be difficult to do if the only result they see is a rise in sticker prices.
"The goal is not to take the most lucrative share of the industry," said Ghana's Minister of Trade and Industry, Alan Kyerematen, suggesting that his neighbors could produce components for badembly plants in his country.
Automotive executives recognize the challenges, but point to a famous precedent.
When VW and GM entered China in the 1980s and 1990s, vehicle ownership rates were lower than those of many African markets. Today, these two companies alone sell more than 3.5 million vehicles per year in China.
"Everyone laughed saying that China did not need cars, but only bicycles," said Schaefer.
(Joe Bavier and Emma Rumney reported in Johannesburg and Duncan Miriri in Nairobi, additional report by Clement Uwiringiyimana in Kigali and Chijioke Ohuocha in Lagos, edited by Alexandra Zavis and Anna Willard)
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