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Car sales in Africa: Barriers to growth

2014-05-22 13:39

SLOW TO GROW: Nigeria’s middle class may be expanding but low household incomes and used car imports hinder vehicle sales. Image: AFP

Africa’s middle class may be emerging fast but lower GDP per-capita incomes and used-car imports dominating most of sub-Saharan Africa continue to hinder new vehicle sales on the continent.

Chief executive of Imperial Fleet Management (IFM), Nicholas de Canha, said: “The big picture really is that the new-car market is very small in Africa and unfortunately will continue to remain small for many years with unit sales growth seeing, at best, 10% a year.

“This is particularly true," he added, "for countries not experiencing a resources boom. The key is increasing per-capita GDP – and that's a slow process."

He believed the middle class was the group that drove any economy but, although that group was growing in a number of African countries, it would take time.


"Realistically, GDP per capita needs to grow until it’s R52 000 to R62 000 per person per year before we’ll see robust automotive markets across the continent, which essentially means you have enough money in the economy for people in the country to have money to buy cars”.

Data released by the International Organisation of Motor Vehicle Manufacturers report sales of new cars on the continent at 1.2-million of the 62.6-million globally in 2013.

Tim Jacques, general manager of Associated Motor Holdings Africa, , said: “The total of 1.2-million for 2013 would constitute largely North African markets and South Africa, making the remaining automotive market on the continent even smaller than one would expect.”

De Canha said the African automotive market could be split in three sections:

  • South Africa
  • North Africa (including Morocco, Egypt, Algeria, Tunisia, Libya) 
  • Middle Africa - everywhere else in between.


De Canha said if there were 100 new car sales in Africa then roughly 60 would be in South Africa, 35 in North Africa and possibly 10 in “middle Africa”.

Jaques added: “With that in mind, ‘middle Africa’ has a huge imported used-cars market. Such imports are illegal in South Africa and north Africa. In fact I would even suggest that the used-car market in middle Africa is about 10 times the size of the new-car market in the region - where 90-95% of these used imports are made up of passenger vehicles.

"That is part of the reason why there are so few new passenger vehicles sold in middle Africa (typically less than 20% of total market).

“In South Africa and other more-developed automotive markets, however, passenger vehicles make up 65% of new sales and LDV's 35%.”

Nigeria has a population (174-million), three times that of South Africa, and if the economies are equal in size then Nigeria’s GDP per-capita income would be one-third of the R72 000- R83 000 in South Africa, reports IFM.

With the addition of a markedly higher, Gini coefficient the small Nigerian middle class wouldn’t be able to afford a new Etios (from R126 000 in South Africa) but they would be able to afford a R20 000 small used car from Europe or elsewhere.


De Canha said: “Even with the emerging middle class in Nigeria, vehicle sales for the country are around 20% of South Africa’s and that will continue to grow at a rate of about 10% year-on-year. Government policy must focus on ensuring their economy continues to grow so that more people will have more wealth.

“However, before the middle class will start buying new cars, the government would need to do something aboutused-car imports coming."

A used car will enter the market at less than 50% of the cost price of a new car due to depreciation and low duties on used cars, reports IFM.

Jaques adds: “Though these vehicles aren’t sold with a warranty or service plan people will take their chances because it is so much cheaper – and consumers will buy with a short-term view that is more concerned with an immediate requirement and less concerned as to how they will service the vehicle.”

This model only works when potential customers don’t have much in terms of expendable income. As a drivers become more wealthy they expect warranties and other value added services.


Should Nigeria change its tax structures for used and new vehicle imports the new-car market would grow rapidly and could even triple its current size within five years - as it did in Angola, reports IFM.

De Canha said: “With these increases in new-vehicle sales comes more investment in the country through sophisticated market structures, including proper dealerships and workshops, possibly even component manufacturing and assembly plants.

“Government intervention is certainly needed to either ban used imports or at least adjust taxes/duties to create a more level playing field between used and newimports – and doing so with the realisation that a more robust automotive market also boosts other and greater potential industrialisation benefits for the economy.”

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