28 sep 17

South Africa: mature services and expansion into the rest of Africa

Nigel Webb is an independent fleet management consultant with a large experience in the fleet market. He discusses the trends he saw on the South-African market and the upcoming evolutions. Nigel collaborated with Global Fleet to create the WIKIFLEET SOUTH AFRICA. 

Q1. What are the most striking facts of the last 5 years on the South African car fleet management market and what impact do they have for customers?

The South African fleet management industry has a full range of vehicle finance products (operating leases) and fleet management services with a focus on cost management and operating efficiency, the scope of which matches major markets.

The full maintenance leasing (FML) market in South Africa is now over 35 years old but in recent years has not seen material growth. In South Africa's corporate fleet of 1.3 million passenger cars there are less than 100,000 vehicles are on FML. While this figure remains low in comparison to International standards, there is a growing market awareness of the need for fleet management products and services

In the last 10 years a shift away from company owned vehicle to car allowances where the driver is paid a monthly allowance to purchase and operate their own vehicles. This was initially motivated by tax benefits and the driver’s wish to own their own vehicles. In recent years the Tax benefits have been equalised, but ownership and the wish of companies to be out of fleet management prevails.

Increases in ownership costs (TCO), in excess of local inflation, continue to dominate the fleet industry, driven largely by the continuing depreciation of the local currency (ZAR). Consequently the fleet management industry has developed a robust range of non-finance fleet management services, to complement finance based products, which are seen as tools to reduce customer’s fleet costs.

Q2. What piece of advice could you give to international fleet managers seeking fleet management optimization in South Africa?

International fleet managers entering South Africa must have comfort that there is an available and familiar range of vehicle finance products and fleet management services of good quality. The range of available vehicles will surprise most as we are oversupplied in European and Asian vehicles options. Importantly, those vehicles that are preferred in European / US markets may be available, but are not necessarily the best in South Africa because of importation considerations.

Operating conditions, unless specifically off-road or country based, are generally good but the distances are probably greater than most are accustomed to. Public transport is poor and there is a necessity for private transport.

Q3. How do you expect to see the corporate fleet and lease market evolve in the upcoming 3 years?

The range of fleet management services is well developed and leading leasing companies such as Eqstra Fleet Management report that this will be their area of future growth and will support their expansion into the rest of Africa.

Telematics in South Africa is extremely well developed to the point that many of the major local companies manage fleets worldwide. However, as is the international trend, reducing the large volume of data to manageable tools has to be the priority to ensure that it full benefits are utilised and understood by fleets.

Driving standards in South Africa are poor and improving safety standards has a strong focus within fleets and the Government. Telematics systems are readily available and match best international standards. New development is increasingly focused on measuring on-road driver performance, which in turn plays an active role in driver management and training.

Importantly the Government in the final stages of introducing a driver demerit system (AARTO), similar to that applied in Australia and Europe. If AARTO is successfully implemented this will have a material impact on driver behaviour. Company fleets will similarly be impacted by requirements that fleets are roadworthy and compliant to regulations at all times.

The ZAR is known to fluctuate more than most but the long term trend is one of further depreciation which will impact negatively on new vehicle prices and operating costs. The range of fleet finance options and fleet management services can contribute to their containment but cost management should remain the focus of fleets.

Interest rates have recently started to reduce which may indicate a downward cycle in interest rates. After a 6 months period of recession positive GDP growth has again been reported.

The introduction (January 2019) of the international accounting standard IFRS16 for leases, requiring that vehicle leases in excess of 12 months are on balance sheet, has the potential to influence the local operating lease market. This has historically relied upon off balance sheet financing but the cash flow and associated fleet management benefits of operating leases may continue to support industry growth.

South Africa will be influenced in the longer term by international trends of electric and autonomous cars and stringent environmental requirements but due to our market size and position we expect to be followers.

To get a better insight in the Fleet Market of South Africa, consult the Wikifleet page.

Authored by: Caroline Thonnon