VW and Nissan target west Africa ... but bank financing is a problem

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Volkswagen (VW) and Nissan are two global carmakers planning to set up new plants in Ghana to target west Africa’s 382 million people. Their challenge: finding banks that will offer loans to make new cars affordable.

In a country where an estimated 70% of imports are second-hand, new car ownership is rare, said Believe Alorbu, who sells older models shipped from the US at half the price of a new one.

Speaking from her dealership in the capital Accra, Alorbu said that, when buying new cars, “people will sometimes leave the plastic wrapping on their seats”.

“Even if the government increases tariffs on used cars, people will still be unable to afford new cars if they do not get access to financing,” she added.

Less than 5% of new car sales are financed by banks, according to the Ghana Automobile Dealers’ Association. In some cases, lenders demand that employers agree to redirect part of the purchaser’s salary to the debt, or that the owner take out insurance to cover a default.

Interest rates of 22% to 30% also make loans “largely” unaffordable, said Koketso Tsoai, an auto industry analyst at Fitch Solutions.

Once their facilities are up and running, VW, Toyota, Nissan and possibly Renault SA will need to contend with second-hand cars like those sold by Alorbu. Ghana’s government is trying to make it more attractive to set up plants, with planned import duties of 35% on second-hand cars, from the current 5% to 20%, and with tax breaks that improve as the companies move from assembly to local production.

It has also pledged to promote regional exports.

“We do not look at it only for today,” said Mike Whitfield, the chairperson of Nissan Africa, speaking by phone from Cairo, Egypt. “We continue to see Africa as the last frontier left in the automotive market; west Africa being a key part of it.”

About 10% of west Africa’s population is able to spend more than $11 (R156) a day, according to data compiled by World Data Lab. It is this group that the industry is targeting on a continent that adds about 10 million new consumers a year.

By 2030, Africa’s middle- and upper-income classes are expected to exceed 300 million of the world’s 4 billion-strong consumer market, the data show.


Standard Bank, Africa’s largest lender, is also preparing for future growth by replicating its South African car-financing business in other parts of the continent, including Ghana.

About three-quarters of car loans still go to companies, said Patrick Koduah, head of vehicle and asset finance at the company’s Stanbic Ghana unit. “There is a huge opportunity to grow personal demand.”

About 30 000 passenger vehicles were imported to Ghana in 2018, according to estimates from Fitch Solutions. Ghana had 7 073 new vehicle registrations in 2018, of which 4 268 were passenger cars, according to the International Organisation of Motor Vehicle Manufacturers.

While the government has said that its car incentive programme would include the creation of an asset-based vehicle financing component, a trade department spokesperson could not provide details on how it would work.

According to pan-African lender Ecobank, the average car loan in Ghana amounts to $30 000. Banks typically demand a high down payment and limit loans to five years if they do grant credit, while dealers sometimes allow buyers to spread their repayments over six months.

Thomas Schaefer, the head of VW SA, estimates that more than 90% of new vehicle sales in South Africa, the continent’s biggest market, are financed. The country had a penetration rate of 132 passenger cars per 1 000 people last year, compared with 22 per 1 000 people in Ghana over the same period, according to Fitch Solutions.

“If I would take out the financing options in South Africa, our market would disappear,” Schaefer said.

The carmaker, based in Wolfsburg, Germany, plans to start a ride-hailing service in Accra, modelled after a similar one in the Rwandan capital, Kigali, to ensure that its output is absorbed.


“The assumption is that, in Africa, out of the more than 1 billion people, there are only about 100 million people who can afford a new car. But you may have a few 100 million people who need to go from A to B and have a bit of money in their pocket,” said Schaefer. “You need to tap into this market.”

Nissan sees its assembly plant starting by the end of the year, depending on when Ghana’s auto policy is signed into law. VW plans to start by April. Toyota, which described Ghana as “an extremely important market in west Africa”, declined to share details about its strategy.

Ghana will not be the first country to position itself as a gateway to west Africa, as Nigeria announced a similar policy in 2013. However, after a change in government and years in the legislative system, President Muhammadu Buhari rejected the bill in July last year. Carmakers have also signed agreements with Ivory Coast’s government.

“Ivory Coast has already taken some steps in the right direction, which aim to limit the import of used vehicles,” said Léonce Yace, managing director of Ivorian lender NSIA Banque. The company, one of the key players in vehicle finance in the country, saw a 41% year-on-year increase in car loans last year.

“It is not about who should be the hub; it is about who offers the best deal,” said Chris Ndala, managing director of CICA Motors Liberia, a subsidiary of the French group CFAO.

The car companies are starting small in Ghana, with 5 000 units a year or fewer, and are expected to partner with local firms. “We will all go as the business and the market goes,” said Whitfield. “The critical thing is that it is starting.”

Alorbu, the second-hand dealer, does not see the used-car business getting displaced any time soon.

“They make it sound as if used-car dealers are the enemy, but we are helping the consumer,” she said.

“If the government is not ready or willing to provide financing, selling new cars will be a problem.” – Bloomberg

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