Ghana: Strong Domestic Autos Demand Held Back By Regional Outlook
Ghana's development into an oil exporter is the key driver of the country's growth and the expansion of the state's consumer sector. Demand for vehicles - both those associated with the oil production sector (such as trucks) and cars for a developing consumer market - continue to tick up. Currently the auto logistics sector is dominated by catering for the importation of complete cars, but the Ghanaian government is pushing for the development of an auto assembly sector. BMI believes that the government's aim will be realised, with automotive manufactures likely to be attracted by the relative cheapness of importing the containers which would be used for the shipping of auto kits. However, BMI highlights that this is a domestic play as demand from Ghana's neighbours is relatively weak, thereby curtailing the role for auto-logistics in the transit and export sectors.
Oil exports driving economic growth and the development of the consumer sector;
Strong auto sales outlook over the medium term;
Potential auto import diversification away from fully assembled vehicle imports to the import of auto kits in containers;
Ghana's relatively cheap cost to import to attract auto manufacturers interest;
Developed port sector, benefitting from the patronage of international terminal operator APM Terminals;
Underdeveloped internal transport network the main drawback in Ghana's supply chain, investment and expansion required;
Underdeveloped internal transport network to curtail the development of Ghana as a maritime gateway into the country's landlocked neighbours;
Competitively low spending power in West Africa to also curb Ghana's development as a maritime gateway or its long-term role in developing as an automotive exporter.
Oil Exports Driving Domestic Consumer Demand
BMI highlights the key driver for demand in autos in Ghana is due to the country's role as an oil producer and more recently as an oil exporter. Ghana started exporting oil in 2011, with the positive impact on the country's economy being immediately felt, as Ghana's real GDP expanded by 15% year-on-year (y-o-y) in 2011, up from a growth of 8% in 2010. BMI highlights that Ghana's oil wealth is steadily trickling down, with a consumer sector developing, as the population becomes richer. In 2011 for example GDP per capita stood at US$1,563, a y-o-y increase of 19.8% on the 2010 figure of US$1,305.
|LHC: Ghana Total Net Oil Exports (Crude and Products), '000b/d. RHC: Ghana GDP Per Capita, US$ and Ghana Real GDP % Change y-o-y|
However, this rapid growth is placing pressure on the country's logistics network, a fact that is highlighted in the lead times it takes to import goods. Ghana is our regional underperformer out of the seven sub-Saharan African states (the others are Angola, Botswana, Kenya, Namibia, Nigeria and Tanzania) that we have highlighted as offering strong opportunities and which we are analysing from a logistics perspective. Data from the World Bank show that lead times on Ghanaian imports take on average 19 days from port of discharge to arrival at the consignee, placing Ghana in last position out of the seven sub-Saharan states that we are analysing (there is no data for Botswana).
|Long Lead Times|
|LHC: Lead Time To Import (Median Case Days). RHC: Ghana Lead Time To Import (Median Case Days)|
BMI highlights that the situation has got worse in Ghana y-o-y as in 2011 Ghanaian imports took 6.8 days. BMI believes the longer time for imports to reach their final destination is due to the uptick in import demand in the country on the back of oil export wealth trick l ing down through the economy.
The uptick in demand for imports and the subsequent pressure this places on Ghana's logistics network will continue to be an issue for the country. BMI 's Oil and Gas team project Ghana's oil exports to strengthen in 2013, with growth projected to expand by 174.9% y-o-y. Following this considerable uptick in 2013 we project oil export growth to plateau, in line with oil production. As new fields come online, estimated from 2015 oil exports will start to tick up once more. Over the medium term (2013-2017) we project Ghana's oil exports to expand from 61,500b/d in 2013 to 95,600b/d in 2017.
The continued growth in Ghana's oil exports will have a positive impact on the country's economic growth and by extension the development of a consumer sector in the country. Over the medium term we project Ghana's real GDP to expand by an annual average of 7.3%, while the country's real GDP per capita is forecast to grow by 65.6% over this period to reach US$2,599 per capita in 2017.
|Strong Demand For Autos|
|Ghana Vehicle Sales, Units and % Change y-o-y|
Ghana's growing consumer base is highlighted in the country's vehicle sales. In 2013 we project Ghana's vehicle sales to grow by 12.5% y-o-y to reach 10,737 units. Over the medium term (2013-2017) we project an increase of 74.8%, with vehicle sales in the country projected to reach 16,680 units in 2017.
Manufactures To Be Wooed By Low Import Costs
Ghana's consumer and automotive demand outlook will no doubt start to encourage auto manufacturers to explore the option of developing assembly hubs in the country, a trend that would have the backing of the Ghanaian government, as it has stated a desire to develop a domestic auto assembly sector.
The development of auto manufacturing hubs in Ghana would lead to a diversification in the country's automotive supply chain. Currently Ghana's auto import demand is met by complete cars being imported via the nation's ports. The diversification into producing cars in Ghana would lead to auto kits being imported, which are traditionally shipped via container.
The utilisation of boxes for imports would, in BMI's opinion, further drive the development of an auto manufacturing sector in Ghana. BMI highlights that auto manufacturers would be further enticed into the country, as they would stand to benefit from the relative cheapness of importing containers.
BMI highlights that out of the seven sub-Saharan African states that we are analysing, Ghana ranks top in terms of cheapness to import containers. According to data from the World Bank it costs just US$1,315 per container to import a box into Ghana, this is US$225 per container cheaper than second-placed Nigeria.
|Cost to Import (US$ Per Container)|
The relative cheapness to import containers into Ghana has a lot to do with the country's comparatively developed port sector. In terms of port infrastructure the country is ranked 76 globally out of 114 states by the World Economic Forum's Global Competitiveness Report. When compared against the seven sub-Saharan states that we are analysing, Ghana continues to perform well, ranked second after Namibia.
|Global Competitiveness Report Port Infrastructure Rankings|
BMI also highlights that Ghana's container operations also benefit from the patronage of the APM Terminals, which operates Meridian Port Services (MPS), the container terminal at the Ghanaian port of Tema.
The inclusion of an international terminal operator at a port traditionally boosts operations and throughput at the facility, as terminal operators bring with them a wealth of experience and also investment. In the case of AMPT the terminal also brings with it its connections to the world's largest container shipping firm and APMT's sister company Maersk Line.
BMI believes that APMT's operations at Tema have been amongst the reasons behind the Ghanaian port's strong level of liner connectivity. According to data from the UNCTADstat Liner Connectivity Index, Ghana is ranked second out of our seven sub-Saharan states after Namibia (Botswana is landlocked and so therefore not ranked).
|UNCTADstat Regional Liner Connectivity Ranking|
We believe that this relatively high level of connectivity at the port will have also played a role in keeping container import costs comparatively low, as high liner connection levels suggest high levels of competition, which are likely to have forced import costs down.
The potential for the use of containers to ship auto kits coupled with Ghana's developing consumer sector offers a strong growth outlook for the country's container ports. BMI highlights that Ghana's two container ports of Tema and Takoradi are already benefitting from Ghana's growth story. Between 2000 and 2012 container throughput at the port of Tema grew from 166,963 twenty-foot equivalent units (TEUs) to 822,131 TEUs. Box volumes at the port of Takoradi posted a similar growth trajectory expanding from 43,126 TEUs in 2001 to 56,595 TEUs in 2011 (last available data).
|Upside To Already Strong Box Outlook|
|LHC: Port of Tema Container Throughput (TEU). RHC: Port of Takoradi Container Throughput (TEU)|
BMI highlights that the continued growth in Ghana's consumer sector will place pressure on the country's container ports. Unlike elsewhere in Africa, congestion at Ghana's ports is not a major worry for BMI. As noted, Ghanaian ports are already starting from a relatively high base in terms of how developed they are and BMI highlights that investment is already being made to ensure that they can keep pace with the projected increases in throughput.
At Tema's container port for example, APM Terminal announced in May 2013 that it was in the process of installing nine new rubber-tyred gantry cranes, as part of the international terminal operator's ongoing investment in the facility. BMI notes that this equipment will not only boost the port's throughput capacity, but also the speed in which containers can be processed.
Ghana's ports play a key role in ensuring the relative cheapness of the country's imports; BMI also highlights that Ghana's government has also played a role in bringing down import prices and creating a competitive logistics environment with other sub-Saharan African states. The number of documents required for imports, just seven, places Ghana on an equal footing with Namibia, Botswana and Kenya.
|Documents To Import (Number)|
The benefits of comparatively cheap imports, a developed port sector and low levels of trade bureaucracy places Ghana in a strong position to be picked by auto manufacturers seeking to develop assembly plants in sub-Saharan Africa. That is not to say that it will be plain sailing for the country's automotive development, as BMI highlights that there are areas of Ghana's logistics sector that need considerable investment and development.
Internal Transport Network Lets The Side Down - Expansion And Investment Needed
Ghana boasts a well-developed port sector enabling the country to offer strong international trade links. However, once the goods have arrived at the port, transporting them internally presents a problem.
Ghana is an outperformer in terms of its port sector, but the rest of its transport network does not score so well. Ghana's road network is ranked fourth out of the six of seven sub-Saharan states that we are analysing (there is no data for Angola) and last in terms of rail.
|Internal Transport Network - The Drawback|
|LHC: Global Competitiveness Report Road Infrastructure Rankings. RHC: Global Competitiveness Report Rail Infrastructure Rankings|
BMI believes that the relatively underdeveloped nature of the country's internal transport network is the other reason behind the long lead times faced by Ghana's importers; this is a major drawback for companies such as auto manufacturers seeking to develop operations. Investment and expansion needs to be channelled into the country's internal transport network, otherwise all the investment that has been - and continues to be - funnelled into the country's port will be wasted as bottlenecks will form further up the supply chain. BMI highlights that the current state of Ghana's road and rail network will also curtail the country's ability to perform a role as a maritime gateway.
Gateway Or Export Role Unlikely
BMI notes that in East and Southern Africa a key reason for automotive development in states has not only been their domestic auto demand outlook, but also that of their landlocked neighbours. In West Africa the question of states functioning as maritime gateways has barely been raised.
|Low Demand Curtails Ghana Gateway Role|
|2013f Africa GDP Per Capita (US$)|
BMI believes that this is due to the relatively low demand outlook for West Africa's landlocked states. For example, Ghana could potentially operate as a gateway for goods into the landlocked states of Mali and Burkina Faso. However, considering these countries' low demand levels there is not the incentive to push for the development of Ghana to serve as a maritime gateway.
This raises the question among automotive manufacturers investigating the potential of developing assembly hubs in Ghana of whether domestic demand, with little interest from neighbouring states, is strong enough to warrant the investment needed to develop manufacturing operations in the country.
According to BMI's GDP per Capita forecasts for the African regions, West Africa scores the lowest. In 2013 we project the GDP per capita on average for the West Africa region to stand at just US$1,171.
|Lower Demand In The West|
|Africa Regional Breakdown Average GDP Per Capita 2013f (US$)|
This relatively low level of spending power in the region will curtail, in BMI's view, the development of automotive manufacturing in Ghana for the purpose of exports. BMI therefore believes that it will take much longer for automotive firms to see potential hubs for automotive production with an eye on the export market in West Africa than in other regions.
This will mean that for the moment the automotive sector will not benefit from the relative ease by which exports can be transported out of Ghana. The country tops our list of seven sub-Saharan states in terms of export cost, with Ghana also benefitting from low levels of bureaucracy for the export of goods, with just two documents needed for goods to be transported out. Surprisingly, although Ghana scores low due to the relative slowness of imports, the time to export goods is much quicker, with the country's lead time to export standing at just two days, placing it in joint first position with Kenya and Namibia.
|Autos To Miss Out On Ghana's Developed Export Sector|
|LHC: Cost To Export (US$ per Container). RHC: Lead Time To Export (Median Case Days) and Documents to Export (Number)|
In BMI's opinion the strength of demand for automotives in Ghana, with our Autos team forecasting vehicle sales to grow by 74.8% over the medium term (2013-2017), will be enough for some manufacturers to explore the potential to set up shop in the country and move Ghana's automotive sector away from a reliance on importing fully assembled cars to importing kits for assembly. The industry also has the support of the government, which has approached companies in neighbouring countries to consider building facilities in Ghana.
Unlike some of the African states' automotive and logistics sectors that we have analysed, BMI does not believe that Ghana has much of a role to play as a gateway for landlocked African automotive imports in the region, due the relatively low demand outlook for these countries. West Africa's comparatively low spending power will also curtail Ghana's ability to develop as a manufacturing hub for the region, as demand is just not yet strong enough, thereby removing an export role for the country in the automotive sector.