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1. Introduction: the Sub Saharan African Auto Industry in a global context
2. Industry development, investment & sustainability:
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3 Ghana’s economy has traditionally been associated with high rate of inflation. Taming inflation has been a key macroeconomic objective since the adoption of Structural Adjustment in the mid-1980s.
2.1 Ghana
Prior to the outbreak of the COVID-19 pandemic, Ghana’s economy appeared to be doing well on a number of indicators. The macroeconomic outlook seemed stable with an inflation rate entering the Bank of Ghana’s medium-term target of 6 to 10 percent. At the end of 2019, inflation was 7.9 percent, the lowest in almost a decade.3 The fiscal deficit – an excess of expenditure over revenues – declined from about 8.7 percent of GDP in 2016 to less than 5 percent in 2019.
The primary balance was also in surplus for the last three years, reflecting a slowdown in the rate of debt accumulation.
Table 1 Ghana’s macroeconomic performance before the COVID-19 outbreak (2016-2019)
External Variables
2016 2017 2018 2019
Trade account as percent of GDP -4.0 2.3 3.4 Current account as percentage of GDP -5.2 -3.4 -3.1 -2.8 Gross International Reserves (months of import cover) 2.8 4.3 3.6 4.0
Source: GSS; MoF, 2020
In terms of external trade, the country appeared to be turning the corner on the high deficit that characterised its trade with the rest of the world. Export was rising faster than imports. The negative trade balance recorded in 2016 (-4.0) was reversed with a positive balance of 3.4 percent of GDP. The current account deficit narrowed from 5.2 percent of GDP to 2.8 percent.
GDP grew at an average of 7 percent in the past 3 years and it was projected to grow at 6.8 percent in 2020. Overall, economic growth has been led principally by the growth of industry, which has recorded an average growth of 10.9 percent since 2017. Industry growth has been fuelled by increased activity in the oil and mining subsectors. Gold outputs and oil production has expanded significantly in the last few years.
Significant was also the expansion of manufacturing following the implementation of the government’s flagship Industrial Development Programme, dubbed OneDistrict-One-Factory. This programme seeks to install a factory in all the administrative districts of the country. The programme also aims to support the revival of existing but struggling manufacturing firms. The manufacturing sector has achieved a growth rate averaging 6.6 percent since 2017.
Figure 1
Economic growth in Ghana (2016-2019) – at constant 2013 prices
9 8 7 6 5 4 3 2 1 0
2016
2017 GDP growth Non-oil growth 2018 2019
Source: GSS, 2020; MoF, 2020
Figure 2
Economic growth by industrial sector (2016-2017) – percent
18 16 14 12 10 8 6 4 2 0
Source: MoF, 2020
2016 2017 2018
2019 Agriculture Industry Service Manufacturing
The outbreak of COVID-19 and the restrictions imposed to contain it have changed the macroeconomic situation. Growth projections for 2020 and beyond have been reviewed downward. GDP growth for 2020 has been revised to 0.9 percent from an initial projection of 6.8 percent. The fiscal debit (11.4 percent of GDP) is now expected to significantly breach the mandatory threshold of 5 percent of GDP imposed by the Fiscal Responsibility Act. The primary balance will hit a deficit for the first time since 2016 and inflation is expected to rise. The resulting decline in real incomes will affect demand, particularly the demand for durable consumer items including vehicles.
Growth Rate (Percent) Primary Balance (% of GDP) Fiscal Balance (% of GDP)
Figure 3
Ghana’s 2020 macroeconomic projections: pre-COVID-19 and after partial lockdown
10 5 0 -5 -10 -15
Pre-COVID projections COVID-19 projections
4 See https:// allafrica.com/stories/201908300577.html#:~:text=Ghana%3A%20 First%20Ghana%2DAssembled%20 Toyota%20Vehicle%20 Outdoors%20August%202020,-30%20 August%202019&text=The%20President%20 and%20Chief%20Executive,in%20Ghana%20 by%20August%202020.
2.1.1 The Ghanaian auto industry
An important component of the government’s Industrial Development Programme is the ambitious attempt to attract major automobile companies to Ghana and to assemble or manufacture automobiles. In 2019, the government put forward the Ghana Automobile Development Policy (GADP). Among other objectives the automobile development policy seeks to make Ghana a fully integrated and competitive industrial hub for automotive manufacturing in West Africa. This is to be achieved in collaboration with the private sector – global, regional and domestic. The policy also seeks to generate highly skilled jobs in automobile assembly and manufacture of components and parts.
The GADP offers attractive and generous fiscal incentives to companies that locate assembly plants in Ghana. Incentives include fiscal and market guarantee schemes. Among the fiscal incentives are five-year corporate tax holidays for companies/assemblers that undertake Enhanced Semi Knock Down (SKD) assembling of vehicles, and companies that engage in car assembly at the level of Complete Knock Down (CKD) are offered a ten year corporate tax holiday. While companies that are engaged in basic SKD are not eligible for corporate tax exemptions under the GADP, they nevertheless may be qualified for tax exemptions under the Ghana Investment Promotion Centre Act. In addition to the corporate tax exemptions, imports of plant, machinery and equipment intended for building Assembly Plants for SKD, Enhanced SKD and CKD are exempted from import duties and related charges. The fiscal incentives are supported by an array of other incentives that are aimed at securing the domestic market for the companies that assemble or manufacture locally. These include a ban on imports of overaged vehicles, salvaged and flooded vehicles. There is also an assurance that the government’s procurement of vehicles will be done specifically to favour domestically assembled or manufactured cars.
In response to these incentives, and even before the GADP was launched, a number of significant global automobile firms indicated their intention to locate assembly plants in Ghana.
On August 30, 2018, the Ghanaian government signed a historical MOU with the German carmaker Volkswagen (VW) for the establishment of an assembly plant in the country. The signing of the MOU coincided with the visit of the German Chancellor Angela Merkel. Two years after the signing of the MOU, the President of Ghana joined VW on August 3, 2020 to launch the company’s first ever range of locally assembled fleets of cars. This has been hailed as a success story and a harbinger for the revival of the auto industry in particular and manufacturing in Ghana.
Since the signing of the MOU with VW, several other global auto manufacturers have signaled their intention to locate assembly plants in Ghana. On August 29, 2019, Ghana signed another landmark MOU with Toyota, one of the world’s biggest carmakers, for the establishment of Toyota and Suzuki Assembly Plants.4 According to the Chief
Executive Officer of Ghana Investment Promotion Centre (GIPC), significant global automakers such as Renault, Nissan, Changan, Honda and Hyundai have all indicated their readiness to install plants for the assembly of their brands in Ghana.
The Ghanaian auto industry also has a local assembler. The Kantanka Group was the first to assemble a “made in Ghana” car in 1998. In 2013, the Group installed a fullscale automobile assembly facility producing eight vehicles per month and, by 2016, it was producing 100 cars per month. The group appears energised by the government’s increased focus on the automobile assembly and the entry of the global automobile giants into the country. These developments come on the heels of a booming and diverse automobile industry dominated by imports of mostly used cars and parts. Vehicle import is among Ghana’s top three imports. In 2018, vehicle imports accounted for 12.5 percent of total imports to Ghana, making it the highest imports item by value. In 2019, vehicle imports as a proportion of total imports increased slightly, reaching 14 percent (UN Comtrade).
Annual import of vehicles has averaged about USD 1.8 billion since 2016. The vast majority of vehicles imported into the country are used or pre-owned vehicles. The estimate is that between 70 to 80 percent of the vehicles imported and registered in Ghana are used cars.
Table 2 Total imports and import of vehicles
Year Total Imports (USD billion) Vehicle Imports (USD billion)
2019 10.4 1.69 2018 11.9 1.85
2017 2016
12.7 11.3 1.87 1.78
Source: UN Comtrade
The market for new cars is relatively small and appears to be on the decline. From a peak of nearly 7000 in 2014, sales of new passenger cars have dropped to below 4000, a decrease of more than 50 percent. The rising demand for vehicles is met through imports of cheap and often overused vehicles. In the last decade about 1.8 million vehicles have been registered in Ghana. New vehicles represent just about 5 percent of that number with the remaining 95 percent being used vehicles. But these are not just used vehicles; they are also very old vehicles. According to the Ministry of Transport the average age of vehicles in Ghana is 14.2 years.
