Kenya
Data from the Kenya Motor Market Association (KMI) show that while the total new vehicle industry
grew 10% year-on-year (y-o-y) in 2011, the Japanese earthquake and tsunami had the biggest impact
on the country's larger dealers. As a result, those that the association groups as smaller dealers saw
their industry share increase from 6.5% in 2010 to 10%, while their revenues rose 69% compared with
6.1% growth for the combined larger dealers. General Motors East Africa (GMEA) offset some of
the negative impact of restricted supplies for its Isuzu truck brand, however, through its domestic
production, which underlines the advantages to be gained in an increasingly competitive vehicle
segment.
According to data from the KMI, growth in the agriculture, manufacturing and trade segments is driving
demand for pick-up trucks, which accounted for 35% of total vehicle revenues in the nine-month period.
Sales of heavy commercial vehicles still account for 26.8% of the industry, behind pick-ups. We also
believe that construction projects in the region will fuel revenues in the heavier sectors over our
forecast period. Further growth in Kenya's construction segment is projection over the next two years by
BMI's Infrastructure team, supporting the favourable conditions for the commercial vehicle
segment. BMI expects growth in construction market value to remain at roughly the same level as
2010 in 2011 and 2012, with market value reaching KES159bn (US Dollar 2.1bn) by 2012. There could
also be good news on the pricing front if the Central Bank of Kenya's monetary tightening measures
result in the shilling's appreciation.
BMI has previously commented on the effects of a weakening Kenyan shilling on the country's used
car sector and new data show the extent of the problem, with figures not expected to improve in the
short term. Data from the Kenya National Bureau of Statistics show that used car revenues for the eight
months to August 2011 were down 20% year-on-year (y-o-y) to 33,073 units, from 39,790 in the
same period of 2010 previous year.
Dealers have reported a 30% increase since the start of 2011 in the charges associated with importing
used cars, including the exchange rate against the yen and US dollar and higher freight costs. The
shilling reached a record low of below KES100.0/US Dollar on September 26 2011, and the Central Bank
of Kenya expects sustained currency volatility over the next six months. Inflation has exacerbated the
situation and, according to Kwame Owino, chief executive of the Institute of Economic Affairs, this
has particularly hit the middle class, which is the biggest customer base for used cars.
Domestic production is one solution to such issues and Kenya is attracting investment, particularly
from Chinese firms . Commercial vehicle manufacturer Beiqi Foton Motor launched its first
domestically produced trucks in June 2011, after establishing a local subsidiary in the country in late
2010. The Foton Slip Double Cab pick-up truck was assembled at the Kenya Vehicle Manufacturers
facility, where it will be assembled until Foton's own plant comes onstream. As part of a growing
focus on Africa by Chinese auto firms, the industry player is building its own vehicle assembly plant,
which is scheduled to begin operations in May 2012. Chery Automobile will be the next Chinese
carmaker to invest in Kenya. According to Justus Nguu, director of Chery's local franchise holder
Stantech Motors, Chery is now in negotiations with the Chinese government to secure financing of
US Dollar 50mn for the Kenyan plant, which the carmaker plans to open in 2013.
Sudan
Despite the relatively high level of vehicle ownership in Sudan (data refer to pre-South Sudan
secession), compared with its regional peers, the industry for new vehicles is very small. The used car
market, therefore, as in many other Sub-Saharan African countries, is the main source of vehicle
stock. This is true to such a degree that legislation was introduced in 2010 to ban imports of secondhand
cars in order to shore up new vehicle revenues .
Over the short term, BMI does not expect the situation to improve for new vehicle revenues . Following
the secession of South Sudan, which is home to the majority of oil fields, and consequently, oil
revenue, we believe there will be an economic contraction for Sudan in 2011, followed by a return to
tentative Gross Domestic Product growth of 2.4%. The hammering out of a definitive agreement with South Sudan on the
distribution of oil wealth will be a key factor in establishing economic stability, as will Sudan's
attempts to develop its extraction markets as an alternative income to oil. At the present time, we are
forecasting a fall in revenues for both 2011 and 2012, with revenues not projection to return to 2010 (presecession
of South Sudan) levels until at least 2014.
Sudan ranks in last place in our newly compiled Market Risk/Reward Ratings for the Sub-Saharan
African region, with a score of just 21.64 out of 100. The country scores particularly poorly on our
Autos Industriescore, which measures how we feel the new car revenues industry will develop over our
forecast period to 2016. Both car ownership rates and per capita incomes remain among the lowest in
Africa. The one bright spot in the overall industry is within the commercial vehicle segment, where we
believe there may be opportunities for truck manufacturers as Sudan develops its mining segment . A full
ratings table and commentary on the Sub-Saharan African region can be found in this report.
Looking forward, following a period of belt-tightening in the immediate post-secession period, BMI
sees some opportunities for the autos segment, with the commercial vehicle sector again the major
beneficiary. The development of the country's mining segment is gaining traction and we believe if the
exploration phases prove successful and activity picks up, this will generate considerable demand for
heavier vehicles. That said, we believe that the outlook for passenger car revenues remains constrained by
high inflation (18.1% in December 2011) and a weak Sudanese pound, which lost 12% of its value
against the dollar over 2011. Both of these factors will make buying a car even more difficult for the
majority of the Sudanese population.
Despite the small size of Sudan's new vehicle industry, there is no shortage of locally assembled
international brands available, mostly through partnerships with national firm Giad Motor
Company. In the passenger car sector, South Korea's Hyundai Motor is popular, thanks to local
assembly of the Accent and Sonata sedans by Giad. In the commercial vehicle sector, Giad
assembles Mercedes-Benz buses and its own range of light pick-up trucks.
Planning to produce under its own steam is Iran's Saipa. In September 2010, the Iranian firm
announced it would set up a plant to produce 35,000 cars in Sudan over the next five years. The range
will centre on its economy 111, 132 and 141 models. According to Saipa CEO Nematollah
Poustindouz, it was the success of the brand in Sudan that prompted the decision to build a factory.
Tanzania
The small size of its new car industry and limited growth potential has put Tanzania in 16th position in
BMI's newly compiled Risk/Reward Ratings for the autos market in Africa this quarter - slightly
ahead of Sudan. Although the economy grew a robust 6.4% year-on-year in real terms in Q311,
following an already impressive 6.7% y-o-y growth in 2010 (according to the National Statistics
Bureau), much of this growth has been attributed to strong performances in the mining, agriculture,
transport and communications segments .
For a substantial majority of private consumers, new vehicles remain unaffordable, making used cars
the most accessible route to car ownership. As such, we believe that much of the growth in new
vehicle revenues over the coming years is likely to come from industry players and government departments.
Despite these demand-side constraints, BMI sees significant scope for Tanzania to move up in the
ratings systems in the medium and longer term. The country is gradually emerging as a popular entry
point for international players. In January 2012, Indian manufacturer Hero Honda revealed its plans
to assemble and sell motorcycles in Tanzania, in line with its broader regional strategy of targeting the
rural population. Firms representatives have revealed that Honda has manufactured a new CB125
model targeted specifically at African industry s and will be looking to directly compete with Chinese
brands in the sector . For that, it plans to partner with locally based Quality Motors Limited and
hopes to benefit from the latter's local expertise.
The project follows similar commitments made by compatriots TVS Motors and Bajaj Auto, which
kick-started their assembly plants in the country in March and December 2011 respectively. The key
attraction of Tanzania for these industry players is not only an unsaturated vehicle industry but also its
membership of the East African Community (EAC) common industry . Formed in July 2010, the EAC
allows duty-free trade between member states - Burundi, Kenya, Rwanda, Tanzania and Uganda.
Also, the Dar es Salaam port is becoming increasingly popular among importers of cars from Asia
and the Middle East.
However, in terms of the competitive landscape, Japanese vehicles dominate the new vehicles industry ,
with Toyota Motor the most popular.
Uganda
Uganda's new vehicle industry is a tiny fraction of the total autos segment, with second-hand vehicles still
the only affordable option for many consumers. Even then, revenues of passenger cars are around twothirds
the volume of commercial vehicles, with buses comprising the lion's share as public transport is
the most widespread means of getting around.
However, there are signs that new vehicle revenues are growing, albeit at a much slower rate. According
to the Uganda Motor Market Association, revenues of new vehicles for the first eight months of 2011
were up 3% year-on-year (y-o-y) to 1,785 units, compared with the 1,618 units sold the year before.
As in other countries in the region, the growth has been spurred by a healthy construction segment ,
which has generated demand for trucks and heavy vehicles. The data show that out of the total
vehicles sold, 984 were pick-up trucks, while passenger car revenues comprised 377 estates and 227
sedans.
According to local dealers, access to financing is boosting growth in the new vehicle industry . Some
banks will finance a larger percentage of the cost of a new car than a second-hand one, as a new one
will be less of a risk. The Development Finance Firms of Uganda Bank offers 100% financing for
new trucks and buses. However, the data show that bus revenues have not spiked as expected in
preparation for the phasing out of 14-seater vans used as buses.
In the new car industry, Toyota Uganda is the undisputed leader. In the first eight months of 2011, it
accounted for 718 of the 1,785 new vehicles sold, equal to a industry share of around 40%. It was
followed by Motorcare Uganda with revenues of 309 units and Skenya Motors with revenues of just 34
units.
There is also a thriving motorcycle industry in the country, which has attracted investment in local
production. In February 2011, the local distributor for Yamaha Motor motorcycles, Nile Fishing
Company, opened the country's first motorcycle assembly plant. The UGX18.8bn facility has a daily
production capacity of 50 units, but the industry player plans to grow the plant by March 2013, to have
five assembly lines producing a total of 250 bikes per day. The first model to be built at the plant is
the Yamaha Crux, which is often used for commercial purposes, but other models will be added.
Meanwhile, the first signs of a domestically designed car have come from a Ugandan university.
Makerere University's College of Engineering, Design, Art and Technology has unveiled its own
electric vehicle (EV), the Kiira EV, which has been developed and produced by students over a threeyear
period. While the car meets the brief of showcasing local skills and innovation, BMI believes the
country's underdeveloped power generation capacity means it is unlikely that widespread usage of
EVs will be a viable option any time soon.
Global Passenger Car Industry
