Import Ban Is No Quick Fix For Production
While Zimbabwean vehicle producer Willowvale Mazda Motor Industries is citing a potential ban on Japanese used imports as an opportunity to rebuild the domestic industry, BMI believes there are too many flawed fundamentals in the sector to make this the focal point of a turnaround. Consumer spending power, domestic capacity and Willowvale's own business operations will need to be addressed.
As yet there are no signs that such a ban is forthcoming. However, after Finance Minister Patrick Chinamasa stated that unregulated second-hand imports were a waste of foreign exchange and largely 'junk', Willowvale has seized the opportunity to put itself forward as part of the solution. Managing director Dawson Mareya said the company could assemble 9,000 units a year of affordable cars as a replacement for imported Japanese second-hand cars.
The first problem, however, is that according to the Zimbabwe National Statistics Agency, the country imported 206,519 cars in total from January to November 2013, the latest figures available at the time of writing. If second-hand imports were banned outright this would leave a considerable supply deficit. There are other local assemblers such as Quest Motors, which assembles for Chinese brands such as Chery, Foton and JMC, but again volumes would be an issue, not to mention the perception problems that Quest has faced with its Chinese brands (see 'Used Car Market Still A Challenge For Chery', March 26 2013).
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This mindset of preferring established second-hand brands, plus the low level of spending power in Zimbabwe, underlines the importance of the used car segment in the country, which is the second threat to growing the domestic industry. The country has one of the lowest levels of total private consumption and GDP per capita in the Sub-Saharan Africa region, which means second-hand cars are the most affordable option for the majority of consumers.
This has been further emphasised by the reliance of local firms such as Willowvale on government orders for its business. However, the problem with this is that government officials have also been importing new cars and Willowvale has seen its output tumble as a result, with reports circulating in late 2013 that the company owed unpaid debts to Mazda Motor. The Industrial Development Corporation has said that USD4mn would refinance Willowvale's credit line with Mazda for knocked down kits, and that the estimated USD15mn spent by members of parliament on imported cars could be used to comfortably cover this.
Willowvale itself has said it can secure enough external financing to produce cars and instead has called for financing for consumers to buy the cars through recapitalisation of local banks. We believe this would be difficult to achieve, however, given the already high level of non-performing loans and poor deposit growth in Zimbabwe, coupled with our view that neither the government nor central bank has the resources to help the banking sector at this time (see 'Banking Sector Woes Continue', February 20).
The final nail in the coffin for any proposed ban is that this was attempted before and had to be repealed owing to the all of the poor market fundamentals, which are still in place. It was announced in October 2010 that there would be a ban on imported left-hand-drive cars and used cars over five years old, which was expected to lead up to a full ban on second-hand imports by 2015. However, after the backlash from dealers and consumers alike, who feared this would put cars beyond the reach of most ordinary consumers, it was withdrawn. We believe little has changed since then to make a ban viable.