JOHANNESBURG/NAIROBI (Reuters) &#8211; At the edge of Nairobi’s Ngong Forest, thousands of used cars glitter in the hot sun on a dusty field, waiting for buyers. 



Imported from Japan or the Middle East, they offer an affordable route to vehicle ownership in Kenya and have dominated the market for decades.



That is an obstacle big carmakers must overcome if they are to crack Africa, a market promising rapid growth as trade tensions threaten sales elsewhere. African consumers also still need conventional engines just as demand in more traditional markets is curbed by restrictions on carbon emissions.



Volkswagen, BMW, Toyota, Nissan and others have joined forces to lobby governments for steps that would reduce the imports that have made sub-Saharan Africa notoriously difficult terrain and allow local production to flourish.



“The question on Africa isn’t, ‘Is it a market of the future?’” Mike Whitfield, Nissan’s top executive for Africa, told Reuters. “It’s a case of when.”



Four years after forming the Association of African Automotive Manufacturers (AAAM) their efforts are starting to bear fruit. Carmakers that set up local assembly plants could get tax holidays of up to 10 years and duty exemptions in Nigeria, Kenya and Ghana, according to government plans seen by Reuters.



Thomas Schaefer, who heads Volkswagen’s Africa business, said there is a potential market in sub-Saharan Africa for 3 to 4 million new cars, up from just 420,000 in 2017.



But that will require addressing the well-entrenched interests of second-hand car dealers, smugglers and lowering the price of new cars.



“It will largely depend on how successful the African governments are in limiting the amounts of second-hand imports and how price-competitive new vehicles can be with their tariffs,” said Craig Parker, Africa research director at Frost &amp; Sullivan, a U.S.-based market research firm.



<h3 class="wp-block-heading">MULTIPLYING EFFECTS</h3>



Africa’s population and household incomes are rising rapidly. But its 1 billion inhabitants account for only 1 percent of the world’s new passenger car sales, industry data shows. South Africans bought over 85 percent of those vehicles.



The AAAM identified Kenya, Nigeria and Ghana as potential manufacturing hubs and helped draft legislation setting up standards and incentives.



Details of governments’ plans provided to Reuters demonstrate that African nations are keen to secure a spot as a beachhead for the industry. Nigeria and Ghana are preparing to offer automakers tax holidays of up to 10 years and duty-free imports of parts and components used in local assembly. Nigeria also plans to double the levy on new, fully-built imported vehicles to 70 percent to boost demand for locally produced cars, though the policy’s approval has been delayed. In Kenya, automakers will pay no import or excise duties and get a 50-percent corporate tax break. For African nations facing massive demographic pressures, such concessions make sense if they create jobs, said Jelani Aliyu, of Nigeria’s National Automotive Design and Development Council. “The multiplying effects are exponential,” said Aliyu, who foresees supporting industries developing around the plants.



Legislative and fiscal frameworks are being finalised, but companies are already investing millions of dollars in new plants.



VW and Nissan have set up operations in Nigeria, Kenya and Ghana or have pledged to do so. Honda and Peugeot have launched assembly plants in Nigeria, and Peugeot has done the same in Kenya. Carmakers sorely need the business. Their South African divisions, which typically direct operations elsewhere on the continent, face stagnating domestic sales and scant growth prospects in their main export market, Europe. A chaotic Brexit or U.S. tariff hikes could further dampen sales.



Toyota South Africa’s chief executive Andrew Kirby said the strategy is: “Focus on Africa because Africa is going to grow significantly.”



A pivot to Africa could also help insulate automakers from the immediate effects of the electric vehicle revolution. The continent is ill-placed to join it at the moment due to the higher prices of EVs and unreliable power grids.



Just 66 electric cars were sold last year in South Africa &#8211; the continent’s most developed economy.



“Africa will most likely remain as the last bastion of internal combustion engines,” Parker said.



<h3 class="wp-block-heading">DISTORTED MARKET</h3>



Nevertheless, industry officials say the biggest hurdle to developing the market for new cars is dumping from countries such as Japan, where strict vehicle inspections force cars out of circulation after just a few years.



They say this distorts the market by allowing dealers to buy the cars at scrap prices and export them to Africa.



They blame the cheap imports for killing off assembly sectors in a number of African countries including Nigeria, which built around 150,000 cars per year until the 1980s.



Political will is needed to change that, and without it there is little point in considering a country for local production, according to VW’s Schaefer.



“The markets &#8230; are literally not functioning right now due to importation of used vehicles,” he said.



In Kenya, the government plans to wind down imports of cars more than three years old by 2021. Exceptions will be made for passenger vehicles with 1.5 litre or smaller engines.



The policy could see mid-range imported models double in price, according to the 300-member Kenya Auto Bazaar Association (KABA). The lobby group has taken out ads in local newspapers denouncing the policy and is demanding a meeting with Kenya’s president.



Mark Oburu, KABA’s vice-chairman, said the move would hit an industry that delivers 85 percent of Kenyan car purchases.



“The middle class will not be able to own a vehicle of their choice,” he said.



In the Nairobi bazaar, Grace was shopping for her eldest son’s first car. She said she could not afford to buy a new one.



“If they don’t rescind that decision, we will be on boda bodas (motor-bikes).”



Both Ghana and Nigeria have also pledged to tackle the issue. Nigeria hiked taxes on imported used cars in 2014, but smuggling has undermined that effort to boost demand for local production, according to manufacturers and government officials.



Used cars are also among the leading imports in many African countries, and governments will have to wean themselves off the associated tax revenues.



There are other stumbling blocks: access to financing is limited, and countries that don’t host assembly plants must also be persuaded to limit used imports and reduce tariffs on African-made vehicles. That will be hard to do if the only outcome they see is higher sticker prices.



“The purpose is not to take the most lucrative slice of the industry,” said Ghana’s minister of trade and industry, Alan Kyerematen, suggesting that neighbours could produce components for his country’s assembly plants.



Auto executives acknowledge the challenges but point to a famous precedent. When VW and GM entered China in the 1980s and 90s, vehicle ownership rates were lower than in many African markets. Today, those two companies alone sell over 3.5 million vehicles annually in China. “Everybody was laughing, saying China doesn’t need cars, they only need bicycles,” Schaefer said.



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

Auto giants and used car dealers battle it out for Africa’s huge market, what you need to know…

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South Africans are buying fuel at the record high price of R17.08 per litre and with more hikes expected in the near future, what transport alternatives are there to consider? Zaheera Ahmed, Automotive and Transportation Research Analyst at Frost &#038; Sullivan joins CNBC Africa for more.

Are electric vehicles the answer to SA’s high fuel prices?

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Simba Corporation, a family-owned Kenyan company with portfolios in automotive and hospitality has acquired a 35 per cent stake in Hemingways Holdings Ltd.

Simba Corp expands hotel portfolio acquires stake in Hemingways

Kenya&#8217;s removal of excise duty on locally assembled cars will boost the industry, but the government must make power supplies cheaper and address other concerns to draw more investment, the automobile industry association chief said on Thursday.
With little growth in mature markets, automakers are looking to tap into emerging African markets, but there is plenty of competition on the continent for where they might invest.
Kenya&#8217;s East African neighbour Ethiopia, for example, is building an assembly industry and boasts rapidly improving transport links and plentiful, cheap hydro-electric power.
Kenya currently mostly assembles trucks, pick-ups and buses from kits supplied by foreign manufacturers. Some 2,258 vehicles were assembled in the first four months of this year, the statistics office said.
However Volkswagen said this month it would resume car assembly in Kenya after closing a plant in the 1970s.
Rita Kavashe, the chairwoman of the Kenya Vehicle Manufacturers Association (KVMA), said scrapping excise duty offered an incentive to investors in Kenya, where economic growth of 6 percent a year is helping drive vehicle demand.
&#8220;We are anticipating now an increase in purchases of motor vehicles as a result,&#8221; she said, although the slow start to the year meant sales of both imported and locally assembled vehicles would be 14,000 in 2016 compared to 19,500 last year.
But she told Reuters the government had to address other issues that deterred manufacturers, by making electricity supplies cheaper and more reliable and improving efficiency at Mombasa port, a heavily congested regional trade gateway.
&#8220;Cost of electricity has not gone down at all &#8230; The cost is still very high in Kenya so that is a real challenge that needs to be addressed,&#8221; said Kavashe, who is also head of General Motors East Africa, a big assembler in Kenya.
Sales of locally assembled cars plunged 30 percent in the first six months of this year, partly due to the excise duty introduced in January at a flat rate of 150,000 shillings ($1,483) on each assembled vehicle.
The government reversed that decision this month saying it wanted to foster local assembly of vehicles, in which kits supplied by foreign brands are bolted together.
Kavashe said investors also needed reassurance about next year&#8217;s election in Kenya, a nation that has long suffered from political strife.
($1 = 101.1500 Kenyan shillings)
 
(Editing by Edmund Blair and Mark Potter)﻿

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Auto giants and used car dealers battle it out for Africa’s huge market, what you need to know…

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