Industry Trend Analysis - SSA Autos: Turning A Corner In 2018 - FEB 2018


BMI View: SSA vehicle sales will register stronger growth in 2018, led by high-growth markets such as Tanzania and Ethiopia, as well as a return to growth for larger markets such as Nigeria and South Africa.

Sub-Saharan Africa (SSA) will have a much better year for vehicle sales in 2018 as a number of key markets return to positive growth. We forecast sales to grow 3.9%, which puts SSA ahead of Europe and North America in growth terms. The beginning of a recovery in Nigeria will be one of the region's biggest stories in 2018.

Steady Growth For SSA
Global - Vehicle Sales By Region, % chg y-o-y
e/f = BMI estimate/forecast. Source: National sources, BMI

We forecast passenger vehicle sales to grow marginally quicker than commercial vehicle sales, with growth of 4.5% and 3.4% respectively. The relationship between the two will differ from country to country, however, as some consumer bases are more developed and affluent than others, while some countries will see major heavy industries generating demand for commercial vehicles.

Consumer Bright Spots

In 2018, we forecast passenger vehicle first registrations (which consist of new and used vehicles) in Tanzania to grow 17%, reaching a total of 82,711 units by the end of the year. This will mean that Tanzania will remain one of the best performing sales markets in the Southern African Development Community (SADC) region. Our upbeat outlook for the passenger vehicle segment is informed by our expectation that an uptick in household spending will translate into growth in both new and used car purchases. Our Country Risk team forecasts private consumption in Tanzania to grow 6.0% in 2018, up from an estimated 5.5% in 2017. This will be helped by manageable inflation and the country's stable interest rate environment.

That said, we expect the weakening Tanzanian shilling to present an upside risk to vehicle import costs. Our Country Risk team forecasts the currency to depreciate 7.5% y-o-y on average against the US dollar in 2018, following an estimated moderate average depreciation of 3.3% in 2017. With Tanzania lacking domestic autos production, and thus heavily reliant on importing its vehicles from Japan, China, the UK and the US, we expect this volatility in the shilling to place pressure on vehicle price inflation.

Steady Growth In Consumer Spending Bodes Well For Car Sales
Tanzania - Real Private Consumption Growth, % chg y-o-y
e/f = BMI estimate/forecast. Source: UN, BMI

Ethiopia will be another regional outperformer, where we forecast vehicle sales growth of 11.0% in 2018. Business and government fleet purchases and the development of the country's road infrastructure will be the primary drivers of growth in new passenger vehicle sales in the country. Real economic growth is forecast to average 6.6% over our 2018-2021 forecast period. Driving this growth will be strong expansions in fixed capital formation of 6.5% in 2018, with much of this incoming investment coming from foreign firms establishing a position in the country given its long-term potential as a cheap manufacturing hub and the potential size of its retail sector, given its large population. As businesses invest and expand their operations, they are likely to raise their demand for new passenger vehicles. This is particularly the case for the many international companies moving into the space with larger budgets to maintain new, rather than used, company car fleets.

Heavy Industries Drive CV Growth

In contrast to these consumer-driven growth markets, there are other SSA countries where dominant heavy industries are generating vehicle demand, which is borne out in commercial vehicle sales. Zambia is one such example, where we forecast commercial vehicle sales to grow 5.5% in 2018. Our Mining team forecasts real growth in the mining sector to pick up slightly from an estimated 3.5% in 2016 to 4.5% in 2017. This growth will align with a rise in copper mine production volumes, which our Mining team forecasts to grow by 5.0% in 2018 as production ramps up from a number of projects ( see 'Mining And Agriculture Will Lead Economic Rebound In 2017', September 5). We expect this recovery in copper production to help support demand for both light commercial vehicles and heavy trucks required by mining companies to transport materials and other goods.

Steady Growth In CV Segment
Zambia - CV Sales By Segment, Units
e/f = BMI estimate/forecast. Source: Zambiamtc, BMI

Likewise, we forecast commercial vehicle sales in Cameroon to grow 7.8% in 2018 on the back of strong heavy industries. Our Infrastructure team forecasts Cameroon's booming construction industry to grow at an annual average of 8.5% over our 2017-2021 forecast period, and we believe that this strong growth will drive the growth in demand for commercial vehicles over the same period. Indeed, this growth potential has attracted interest in domestic production ( see ' Strong Sales Growth To Improve Low Volume Production Viability ' , October 24).

Sleeping Giants Stir

One of the most positive trends in the SSA market for 2018 is the return to growth of major markets such as Nigeria and South Africa. We forecast new vehicle sales in Nigeria to rise 2.8% in 2018, reaching close to 10,000 units, marking a recovery after three years of sales declines. Vehicle sales in Nigeria have dropped drastically over the last few years (falling 48% y-o-y in the first nine months of 2017) as an economic downturn caused by the collapse in global oil prices, a scarcity of foreign exchange, elevated inflationary pressures and high interest rates eroded consumer purchasing power ( see 'Vehicle Sales To Fall Despite Economic Recovery', December 15 2016). Volumes will still be far below previous highs for the remainder of the forecast period, given how far they have fallen ( see chart below).

In 2017, the persistence of high inflation (which averaged 16.7% y-o-y between January and October) has eroded real disposable incomes, which contributed to a fall in spending on new vehicles. In 2018, we expect to see inflationary pressures ease in Nigeria as weather conditions improve and food prices cool, averaging 12.4%, down from a projected average of 16.7% in 2017. Adding to our more favourable outlook for vehicle sales in Nigeria in 2018 will be improving access to foreign currency. Despite efforts in the country's industry policy to limit vehicle imports, the low levels of autos production in Nigeria mean the market is still largely import reliant. Limited access to foreign currency has therefore constrained consumers' ability to get a hold of the cash required to pay for imported vehicle purchases, which has contributed to the downturn in new vehicle purchases in the country.

Vehicle Sales To Begin Gradual Recovery
Nigeria - Vehicle Sales, Units
e/f = BMI estimate/forecast. Source: Nigeria Customs Service, Local Car Makers, BMI

Similarly, we expect gradually improving macroeconomic conditions to support vehicle sales growth of 2.1% in South Africa in 2018. While we have already seen the market turning a corner, growth will remain relatively subdued given the ongoing risk of political tension surrounding the elections for a new leader of the ruling African National Congress. Any uncertainty or disruption stemming from the result could sustain a lack of confidence among consumers ( see ' Ramaphosa Victory No Panacea ' , December 19). For the most part, however, we expect a cut in interest rates and more manageable inflation to be positive for the autos market.