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The East African : Jan 21st 2017
26 OUTLOOK The EastAfrican JANUARY 21-27,2017 DEVELOPMENT In Ethiopia, cars are so expensive that only a handful can afford them Vehicles impo≥ted into the count≥y att≥act up to five di≠e≥ent taxes By EMMANUEL IGUNZA BBC Africa cash to spend in one of the world’s fastest-growing economies — remains a pipe dream. “I have been saving for nearly O four years now, and I still can’t afford even the cheapest vehicle here,” a frustrated Girma Desalegn says. He has been shopping around for a whole week in the capital, Addis Ababa, and has still not found an affordable car. He is looking to buy a second- hand car imported from the Gulf states or Europe — but even they are prohibitively expensive because the government classifies cars as luxury goods. This means even if a vehicle is secondhand, it will be hit with import taxes of up to 200 per cent. “I have a budget of $15,000 and had expected that with that I could buy a decent family car. I don’t want to buy the Toyota Vitz,” he says pointing to a row of small hatchbacks that have now become popular on Ethiopian roads. These cost about $16,000 in Ethiopia; in neighbouring Kenya, the same car costs not more than $8,000. It seems little wonder that Ethi- opia has the world’s lowest rate of car ownership, with only two cars per 1,000 inhabitants, according to a 2014 Deloitte report. Henok Demessew, who has been running a car import and sales business in the capital, blames taxation. “If it were not for that, we would have been able to import better cars either from Europe or America. But in order to make any profits we have to sell cars at high prices,” said Demessew, adding: “On top of the cost of shipping the cars from say from Dubai via Djibouti, we have to deal with multiple taxes to the government, making this one of the toughest businesses to be in, even though it’s seen as lucrative.” The Ethiopian Revenues and Customs Authority says both commercial and private vehicles imported into the country can be subjected to five different types of taxes. However, despite the heavy tax burden there is a rise in the numbers of car imports. In 2016, On top of the cost of shipping the cars, we have to deal with multiple taxes, making this one of the toughest businesses.” Henok, Demessew, car dealer Traffic on a main street in Addis Ababa. Ethiopia has the world’s lowest rate of car ownership, with only two cars per 1,000 inhabitants. Picture: AFP government records show that 110,000 cars were imported into Ethiopia, an increase of more than 50 per cent from the previous two years. Kasaye Ayele, a tariff officer at the Customs Authority, says there is some discretion. “Vehicles that are imported to be used for public transport — we collect a much lower tax of 10 per cent and not all five taxes are applied,” he explains. “But for private cars, we check the engine capacity and if the capacity is big, we collect anything between 60 per cent and 100 per cent of taxes due.” Once all taxes are added to an imported car’s price tag, it could cost nearly three times more than the retail price in its country of origin. But Mr Kasaye defends the taxation policy, saying it was fair and staggered. He cites examples of discounts given for buying secondhand cars. In a bid to encourage people to buy cheaper, locally made cars, the Ethiopian government has given incentives such as tax breaks to foreign car manufacturers to set up and assemble new vehicles in the country. Currently Ethiopia produces 8,000 commercial and private vehicles for the local market a year — something the government admits is way below the country’s potential. Prime Minister Hailemariam Desalegn has often spoken of plans for Ethiopia to become a leading manufacturer and exporter of locally made cars. MOST CARS ARE SECONDHAND According to a report by Deloitte dubbed Navigating the African Automotive Sector: Ethiopia, Kenya and Nigeria, and released last year, secondhand vehicles dominate the Ethiopian market, making up 85 per cent of the total. Almost 90 per cent are Toyotas, due to their reputation as being reliable and inexpensive to maintain. The vehicles are imported primarily from the Gulf States, through the Port of Djibouti. At least half a dozen car as- sembly plants, mostly Chinese, have been set up in Ethiopia. One of them is Lifan Motors, which was set up nearly seven years ago. One of its cheapest saloon models costs about $20,000 new. It has a plant on the outskirts of the Addis Ababa which assembles about 1,000 cars a year — way below its capacity. For the company’s deputy manager,, Ma Qun, this is down to a lack of confidence in the local market among consumers. Those who can afford imported brands will choose them over local cars, despite the high taxes charged on used cars, he says. “We are not satisfied. Our fac- tory’s capacity is about 5,000 a year but we sell just 1,000 units. It’s because the policy doesn’t restrict secondhand cars,” he said. “So there aren’t really many incentives for us to compete. We are waiting to see if there will The vast majority of the cars are concentrated in Addis Ababa, while the number of vehicles in rural areas remains low. Few grey or illegal imports exist in any of the big cities. Points of entry to Ethiopia are well controlled, with the exception of the area around the border with Somalia. There is almost no publicly available reliable data on vehicle sales. It is, however, estimated that 18,000 vehicles are brought into Ethiopia each year. be a change in the policy.” For many Ethiopian car buy- ers, it comes down to value for money. “We often prefer imported cars because we believe they are much better than the ones the Chinese assembled here,” one prospective buyer said. “On top of that, people don’t trust cars assembled locally because what we import from China are not up to a standard quality.” Another pointed out concerns about spare parts for locally assembled cars. “Those you usually find around here are not genuine. That is the major reason people prefer Japanese cars,” he said. But the government is highly unlikely to change its luxury tax on foreign cars. So for people like Mr Girma, who wants a big, reliable car for his family, it remains a Catch22 situation and his search will continue. Nkosazana Dlamini-Zuma at the African Union summit in Kigali last year. Picture: AFP wning a car for many Ethiopians — even those with ready Zuma hints he will back ex-wife as successo≥ A JOINT REPORT Bloomberg SOUTH AFRICAN President Jacob Zuma is considering appointing his ex-wife, Nkosazana Dlamini-Zuma, to his Cabinet when she steps down as chairperson of the African Union Commission on January 27, easing her path to succeeding him as national leader, government officials said. The move would bolster Dlamini- Zuma’s profile and chances of replacing Zuma as leader of the ruling African National Congress at a conference in December, according to two deputy ministers and an ANC official, who declined to be identified. President Zuma told state-owned Motsweding FM radio last week that the ANC is ready for a female leader and the job won’t automatically go to his deputy Cyril Ramaphosa, the other frontrunner for the top post. Presidency Whoever wins the presidency of the ruling party would be a strong favourite to succeed Zuma as South Africa’s leader after elections in 2019, given the party has won every election since the end of apartheid in 1994. Zuma’s spokesman Bongani Ngqulunga wasn’t immediately available for comment. Calls to Wynne Musabayana, the AU’s head of communications, didn’t connect, and she didn’t immediately answer an e-mail seeking comment. “She has been out of the country, which means that she hasn’t played a very central role in South African politics,” Nic Borain, a political analyst who advises BNP Paribas Securities South Africa, said by phone from Cape Town on Monday. “Those running her campaign would probably try and move her into a more central role in politics before the party’s elective conference.” While Dlamini-Zuma hasn’t for- mally declared her candidacy, she has said she is willing to serve if asked to.
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