15 jan 20

VW and Nissan prime Africa for new car sales boom

Car makers Volkwagen Group, Nissan, Toyota and possibly Renault, are planning new plants in West Africa to target new car sales. In a market in which car loans for the ordinary citizen are almost impossible to find, this could be a risky strategy.

According to the Ghana Automobile Dealers Association, Fewer than 5% of new car sales in the region are financed by banks and without finance, citizens cannot afford to buy new cars. In Ghana, for example, 70% of imported cars are second-hand, shipped mainly from the USA and sold at half the price of new ones.

Africa doesn’t want to be the dumping ground for used cars

The situation is common to many parts of Africa and the fear is that it is becoming the dumping ground for the world’s used cars.

This is perhaps the reason why a change may be coming. Many automakers see Africa as the last frontier in the automotive market.

Governments are already increasing tariffs on used car imports and encouraging domestic production for domestic use. But still the issue is with the banks who remain unwilling to lend money. Interest rates on loans they do give out can be as high as 30%, which makes them unaffordable for West Africa’s 382 million people.

Ghana’s government has said it is planning to put import duties of 35% on second-hand cars (the current level is 5-20%).

Automakers are being offered fiscal incentives to move away from pure assembly to local production. They can also get tax holidays of as much as 10 years for doing so.

Although still underdeveloped in terms of infrastructure and housing, many emerging markets in West Africa, such as Ghana and Nigeria are highly technologically advanced and their economies are growing.

West Africa adds some 10 million new consumers to the global market each year. By 2030, the whole of Africa’s middle and upper-income consumers are expected to exceed 300 million of the world’s 4 billion consumer market. This potential is a huge opportunity for automakers to tap into a growing need for transport, plus the aspirational desires of those who can afford to own new cars.

What are Africa’s banks doing to encourage new car loans?

Although three quarters of car loans go to companies, Africa’s largest lender Standard Bank Group has several schemes for car financing for customers in South Africa. It is now replicating that business in other parts of the continent such as Ghana and Nigeria.

Based in Togo, Ecobank Transnational offers car loans sold through vendors to individuals and businesses. However, banks usually demand a high upfront payment above 10% and tend not to lend beyond five years.

VW plans to start its assembly plant in Ghana in April, plus launch a ride-hailing service in Accra (Ghana’s capital city), similar to the one it has been trialling in the Rwandan capital, Kigali.

Nissan expects its assembly plant to start by the end of this year, depending on when Ghana’s new auto policy is signed into law, which the government has been developing in consultation with Nissan, VW and others, plus AAAM (African Association of Automotive Manufacturers).

Authored by: Alison Pittaway