In recent years, Ghana has emerged as a promising player in Africa’s automotive industry. With a growing automobile assembling sector, the country is positioned to become a regional hub for automotive manufacturing and trade. However, like many developing countries around the world, Ghana is lacking in automobile technology, which is helping countries to navigate the harsh realities of falling economies.
To take advantage of the booming auto sector, Ghana has taken steps to develop its automobile assembling sector. At the heart of this strategic vision is the Automobile Assembly Association of Ghana (AAAG). The AAAG has developed a strategic Ghana Automobile Policy to drive the nation forward and solidify Ghana’s position as a formidable player in the automotive industry both home and in the sub region to switch gears in the automobile sector and subsequently boost the economic outlook of the country due to the industry’s broader contribution to the country’s GDP.
The commitment of the AAAG was demonstrated through the launch of the association in June this year, 2023 which brought on board all the automobile assembling companies including the African Association of Automotive Manufacturers (AAAM) and a host of other stakeholders. Al- ready, several significant players, both local and international, are taking part in this transformative journey. Among them is the home-grown Kantanka Automobile Company Limited. This Ghanaian company, founded in 1994 by Kwadwo Safo Kantanka, assembles a variety of vehicles, from sedans and SUVs to buses, and is known for its unique designs and use of locally-sourced materials.
The other side of this amazing initiative is the involvement of the international companies which are trooping into the country to set up their assembly plants. The presence of the big wits like the Volkswagen Ghana and Toyota Ghana is evidence of the attractiveness of this policy. Volkswagen, the German automaker, operates an assembly plant in Accra, producing a variety of models, including the Golf, Polo, and Tiguan. Toyota Ghana, a subsidiary of the Japanese giant, has been in operation since 1998 with an assembly plant in Tema. It assembles popular Toyota models, such as the Corolla, Camry, and Hilux.
In the intervening time, other recent notable new entrants to Ghana’s budding automotive sector include Suzuki Ghana and Peugeot Ghana. Both Japanese and French companies, respectively, have assembly plants in Tema and started production in 2022. Suzuki models, such as the Swift, Dzire, and Ertiga, and Peugeot models, including the 3008, 5008, and 2008, are being assembled locally.
The interesting thing about the project being spearheaded by the AAAG is that anticipation is building and project is catching the eyes of other major auto- makers. As a result, some have also announced plans to establish assembly plants in the country. These include Chery Auto- mobile from China, MG Motor from the UK, Bajaj Auto from India, and Great Wall Motors also from China. These new entrants plan to start production from 2023 onwards, further solidifying Ghana’s position as an automotive hub in the region.
Over the years, Kantanka, has shown significant progress, since 2017, producing over a thousand cars, including notable electric vehicle models such as the Odeneho 111, K71, and Amoanimaa. This growth has led to the creation of over 400 jobs within the company.
In comparison, Volkswagen (VW) has positioned itself as a strong contender in the market, producing around 5,000 units per year and creating 80 jobs since its inception. Its sales figures reflect a positive market response with approximately 1,300 units sold to date.
Similarly, Japan Motors, with its robust infrastructure, has an im- pressive installed capacity to produce 11,593 units per shift annually. However, it has decided to initiate its journey more modestly, with the production target set at 1,800 units per year to start with.
As part of its transformational agenda, the Government of Ghana has identified vehicle assembly and automotive components manufacturing as a strategic anchor industry to be facilitated and supported as part of the Ten Point Plan for industrial development. As a result of this positive signal, Ghana has attracted investment in vehicle assembly from leading original equipment manufacturers (OEMs) and investment partners, with positive projections of spillovers into local manufacturing.
The industry which is worth billions of dollars is estimated at 4.6 billion dollars. To take ad- vantage of this significant market size, the Ministry of Trade and Industry has developed a comprehensive package of incentives and policy measures to support the establishment of an automotive assembly and component manufacturing industry. This is a strategic anchor of industrialization and a new pillar of growth in Ghana.
Moreover, the Ghanaian government has also been supporting the industry in the form of aid. The assistance from the authorities has enabled it to emerge as one of the 40 quickest-growing commercial productions global ly. The industry currently ac- counts for a quarter of the country’s GDP. The automobile industry may be the primary reason for the increase, as it was projected to account for at least 30% of GDP last year.
Consequent to the abolishment of trade barriers under the African Continental Free Trade Area (AfCFTA), Ghana overtakes Nige- ria by becoming a gateway to the rest of West Africa and a market leader in new car sales. Aiding the sector, the Government of Ghana offers 10-year tax breaks to the automotive manufacturing industry to make Ghana the regional hub for car assembly and enhance car sales in the local and regional markets.
This comprehensive policy isn’t simply a roadmap to vehicle manufacturing, rather, a robust engine for job creation, establishing an asset-based vehicle financing scheme, and bolstering the balance of payments through competitive import substitution and export market development. It embraces a panoramic approach, spanning the manufacturing of passenger cars, SUVs, light commercial vehicles, as well as medium and heavy-duty commercial vehicles and buses.
Ghana’s Automotive Industry, Growth Trends and Forecast
Over the years, the automobile industry in Ghana faced considerable delays, especially in 2020 due to supply chain disruptions in major automotive production hubs worldwide, leading to delays in the shipment of critical auto components to carry out vehicle assembly operations.
However, the automotive industry witnessed significant growth in 2021, likely enhancing the demand for vehicles during the forecast period.
The automotive industry in the country consists of retailers of imported-used vehicles and a few distributors who deal with retailing newly-manufactured vehicles. The country imports about 100,000 vehicles per year. About 90% are used vehicles, with an estimated value of USD1.14 billion annually. The United States, Japan, and Germany are the country’s leading suppliers. The automotive industry con- tributes a quarter of the country’s GDP.
Ghana’s GDP is likely to experience robust growth in the auto- motive industry during the fore- cast period of between 2023 and 2028, owing to the increase in “Made in Ghana” vehicles initiated by the members of AAAG and the increasing skilled-work force in the Ghanaian automotive industry.
Over the long term, the country’s imports of automotive parts and components are likely to increase. The government has therefore planned to reduce corporate tax to around 20-25% and remove special imports levied in the country.
The Market For Auto In Ghana
The market for auto in Ghana presents numerous opportunities. First and foremost, Ghana’s manufacturing industry has always been receiving good support from the government. The encouragement and support of the Ghana government has enabled the country to emerge as one of the best growing industries in the sub region. And the main driver for Ghana’s booming manufacturing industry is the automobile industry.
The automotive market in Ghana is diverse. The sector has leaped from marketing, sales, maintenance and modification to assembling and hopefully to get to manufacturing, as Original Equipment Manufacturers (OEMs) and component manufacturers, join the industry in the near future. Financial pressures, industry restructuring, changing consumer preferences, regulating issues, fluctuating fuel prices and the growing demand for more environmentally friendly vehicles are constantly transforming the automotive industry.
However, the Ghanaian automotive industry continues to adjust to these market pressures. The manufacturing level is being impacted by the increasing number of imported vehicles and the after effects of the global economic crisis, especially the uncertainty with regards to the European markets and its impact on local manufacturing sector.
To survive and grow, automotive companies in Ghana must continuously develop and maintain customer relationships, achieve technical excellence and retain skilled labour pools, and manage significant risks.
The automobile sector of Ghana has been a driver of growth of the country as it is one of the most visible sectors to receive foreign in- vestment. Ghana is a multicultural and ethnically diverse West African nation and is the 9th largest African economy.
On the Ibrahim Index of African Governance, Ghana ranks as the 7th best economy in Africa, which implies a relatively safe haven for foreign investment in the region. Also, Ghana ranks relatively high in the ease of doing business index and also has an extremely high freedom of press rating, which makes it a good emerging market to invest in.
There is also a high demand for a number of vehicle brands in the country. Some of the popular car brands in the country are Toyota, Mercedes Benz, Mitsubishi, KIA, Nissan, Hyundai, Volkswagen, Renault among others.
The Auto Parts Industry
The market for automobile spare parts, in particular, has been an attractive sector for enterprises supplying these goods to many countries in Africa. The rapid industrialisation currently sweeping across many African countries has resulted in an increased demand for capital goods such as machinery, lubricants, spare parts, ball bearings and other mechanical accessories.
The automobile sector of Ghana has been one of the drivers of growth in the country as it is one of the most visible sectors to receive foreign investment. Indian automobiles major Mahindra and Mahindra, has invested heavily in the country and has made it as a regional hub for the manufacture of its Sports Utility Vehicles.
The African auto parts market for vehicles, especially the passenger vehicles is emerging as one of the most important re-export markets, growing more than 11 per cent year-on-year, and was estimated to be worth US$14.68 billion in 2017 and based on the double-digit growth of demand in key Sub-Saharan countries, the value of the Africa’s auto parts market is likely to double by yearly.
Ghana, together with countries such as Nigeria, Kenya, Uganda, have witnessed double digit growth in demand of parts in the past five years. Focusing on the tremendous opportunities of doing business in the fast-emerging African market, there are currently more than 21.6 million cars on the continent’s roads which make up for nearly 70 per cent of spare parts consumption.
However, the continent has a lot of challenges in that regard. The African market is unstructured and the share of non-genuine parts is the biggest challenge to the automotive aftermarket in the Ghana and the entire continent.
Narrowing it to Ghana, used engines are in great demand which has a big market for re-conditioned automobiles. Most of the second-hand car buyers in the country have substantial requirements for quantities of automotive batteries, tyres, spare parts, ball bearings, water pumps and a host of electronic goods. People prefer buying used spare parts because they believed they are genuine and are often in good condition.
The diversified range of used mechanical and body parts of cars and engines has brought this business parallel to genuine and non-genuine new spare parts businesses as it offers big variety at affordable prices.
Meanwhile, the rapid growth of the middle class in Ghana and many African countries has pushed demand for automobiles to an all-time high– in turn creating a growing market for all kinds of tyres: passenger car tyres, off-the-road tyres, industrial tyres, agricultural tyres, truck, bus and trailer tyres as well as motorcycle and bicycle tyres.
The rising demand for tyres in the country as a result of the bad road networks has led to stiff competition between tyre manufacturers from all across the world seeking to garner a major share of the market for tyres in the country and the new and emerging African markets.
Where Ghana Stands As Low-Cost Cars Gain High Demand In Africa
As the market for home-grown cars heat up, it is important for companies to fervently consider the income group of their prospective customers. In Ghana, majority of the citizens fall within the middle-income group, making cost the key consideration when planning to buy a new car.
Now, Indian and Chinese auto firms offering low-cost models are expanding their African reach and Ghana is among the destination countries. India’s Tata Motors, which is currently focusing particularly on the South African market, aims to quadruple its sales in the country by 2028 – both in terms of combined passenger vehicles and light commercial vehicles. It sold 6,500 units in 2020 but wants to bring this up to 30,000 by 2028.
In order to achieve this, Tata plans to more than double its number of Associated Motor Holdings outlets. The company is due to diversify its product range in South Africa, introducing new models such as Tata Aria, Tata Prima and Tata Ultra Trucks. In Ghana, Tata sales has seen a remarkable surge in recent years, making its truck and busses among the most sough- after vehicles. At the same time, the Chinese automobile firm, Foton, has become the dominant Chinese car exporter to Africa. In 2015, Foton delivered 25,000 vehicles the region – from cars to pick-up tricks.
Ford also announced its intention to launch four new models in Nigeria – the Focus, Fusion, Escape and Ranger. Honda, which until recently had focused on the motorcycle market in Nigeria, has also announced that it plans to sell cars in the country.
In countries reaping the benefits of new-found mineral and re- source wealth, demand for vehicles is robust. In Zambia, with its flourishing copper mining industry, the sale of new vehicles was predicted to double between 2016 and 2020. With the infrastructure sector in the country also growing, due to a $6.5bn investment programme, the demand for commercial vehicles has also experienced tremendous grow.
A similar trend marks the auto sector in Mozambique. The south- ern African country is thriving on the back of a coal boom and set to enjoy a new wave of investment due to the discovery of considerable natural gas reserves. An infrastructure boom in Mozambique will similarly drive-up demand for commercial vehicles.
Trends are positive in stable African economies as well. The Kenya Motor Industry Association recorded an increase in new vehicle sales in 2015. In Uganda, the number of newly registered vehicles spiked over 30% year on year in the first 11 months of 2016. Commercial vehicles were at the centre of this positive growth, while new vehicles sales were predicted to increase by 14% between 2016 and 2021.
On a continent where disposable income, although rising, remains constrained, the used car market will continue to exert consider- able pressure on the new vehicles market. Nigeria imports around 300,000 second-hand vehicles annually. According to the Japan Used Motor Vehicle Exporters Association, Japan alone exported 26,000 ‘pre-loved’ cars to the country in 2017.
Market For Locally Assembled Cars In Ghana
As a budding industry that is trying to gain its footing among the populace, there is varied level of demand for locally assembled cars. According to the President of the Automotive Assemble Association of Ghana (AAAG), Jeffrey Oppong Peprah, more than 4700 locally assembled vehicles have been sold in the local market and exported to other African markets since the development of the automobile policy in Ghana.
This was done by the major local assembling firms in the country, namely: Volkswagen, Toyota, Kantanka and Silver Star Auto Limit- ed, distributors of Peugeot vehicles in Ghana.
To boost sales of locally assembled cars, The Automobile Assemble Association of Ghana opened an ultra-modern $8 million office and showroom facility for the Automotive Development Council.
The Automobile Development Council forms part of the flagship initiatives by the government under the Ministry of Trade and Industry to support the assembling of vehicles in the country to sup- port local job creation.
Meanwhile, as part of the implementation of the government of Ghana’s Industrial Transformation Agenda, the Ministry of Trade and Industry in 2018 commenced the design of Ghana Automotive Development Policy aimed at making Ghana the automobile manufacturing hub in the sub-region.
Automotive Development Council through the implementation of the Ghana Automotive Development Policy is a testament that the country is on a path of becoming the vehicle manufacturing hub within the sub-region. This has led to the attraction of six of the top 10 leading Original Equipment Manufacturers of the world to invest in Ghana.
Increasing Passenger Car Demand
The auto market in Ghana is incomplete without incorporating the passenger car into the equation. Approximately 62% of the new vehicle market comprised passenger vehicles as per new vehicle registrations in the previous year. Amid the growing GDP of the country and rising purchasing power, passenger vehicle sales are driven by government purchases. Major vehicle manufacturers are expanding their production facilities across the country, which is likely to witness major growth in the market.
For instance, in April 2022, Nissan Motor Co. Ltd opened a new car assembly plant in Ghana. The new assembly facility has an area of about 5000 square meters and can produce more than 31,000 vehicles per year. In June 2021, Toyota Motor Corporation opened its second vehicle assembly plant in Ghana. With the new assembly plant, used vehicle imports were reduced and exports increased. Toyota invested an amount of USD 7 million with an annual production capacity of around 1,330 units.
The Government of Ghana has attracted investment in vehicle assembly from leading original equipment manufacturers (OEMs) and investment partners to promote manufacturing facilities across the country. The Ministry of Trade and Industry has developed a com- prehensive package of incentives and policy measures to support the establishment of an automotive assembly and component manufacturing industry as a strategic anchor of industrialization and a new pillar of growth in Ghana.
As a budding industry that is trying to gain its footing among the populace, there is varied level of demand for locally assembled cars. According to the President of the Automotive Assemble Association of Ghana (AAAG), Jeffrey Oppong Peprah, more than 4700 locally assembled vehicles have been sold in the local market and exported to other African markets since the development of the automobile policy in Ghana.
This was done by the major local assembling firms in the country, namely: Volkswagen, Toyota, Kantanka and Silver Star Auto Limit- ed, distributors of Peugeot vehicles in Ghana.
To boost sales of locally assembled cars, The Automobile Assemble Association of Ghana opened an ultra-modern $8 million office and showroom facility for the Automotive Development Council.
The Automobile Development Council forms part of the flagship initiatives by the government under the Ministry of Trade and Industry to support the assembling of vehicles in the country to sup- port local job creation.
Currently, second-hand import vehicles dominate the passenger vehicle segment. A large share of the used vehicles is imported from the United States, as the vehicle specifications in the United States are more in line with the taste and preference of consumers in Ghana, which entry-level models from Europe are not designed to meet.
Import restrictions on specific categories of vehicles (vehicles older than ten years and salvaged/accident vehicles) contribute to an in- crease in new car sales. However, due to low disposable income and high costs associated with new vehicles, used vehicles dominate Ghana’s automotive retail sector. These vehicles are mainly import- ed from regions with low resale or residual values of used vehicles like Europe, Japan, and the United States.
A common trend that can be seen is that a small percentage of new vehicles compete against a strong influx of much cheaper used im- ported vehicles. Vehicles tend to appreciate due to the limited supply of vehicles and import duties.
Financial Institutions Role In Ghana’s Automotive Development Policy
One of the major problems in Ghana that has been impeding the growth of the automobile sector is the lack of financial inclusion in the country. Automobile ownership is difficult for most people since they lack access to financial loans and other options like leases.
Financially, the policy offers a plethora of lucrative opportunities. It comes with a 5-year Corporate Tax holiday for Enhanced Completely-Knocked-Down (CKD) Registered Assemblers and a 10-year Corporate Tax holiday for Registered CKD Assemblers and Component Manufacturers. Complementing these are exemptions on import duties and related charges on plant machinery, equipment for Semi-Knocked-Down (SKD), Enhanced SKD, and CKD Auto Assembly, creating an attractive investment environment.
Financial institutions are well-positioned to fuel this transformative journey. From offering financial support to companies establishing plants, opening trade avenues for the importation of parts, to pro- viding advisory support to local manufacturers seeking partner- ships with Original Equipment Manufacturers (OEMs), their involvement is vital.
Furthermore, this policy presents opportunities to align with green energy companies for cost-saving and robust Environmental, Social, and Governance (ESG) practices. This syncs perfectly with the banking sector’s commitment to sustainable development and responsible business operations.
As Ghana gears up, it’s instructive to look at success stories within the continent. South Africa’s automotive industry, with its global vehicle production ranking at 21st, stands as an ideal blueprint. The South African Automotive Masterplan (SAAM) 2021-2035, with its focus on increased foreign direct investment and trade, sets a clear target: producing 1% of global vehicle production, or 1.4 mil- lion vehicles, annually by 2035.
This projection is backed by substantial foreign direct investment, with OEMs investing R8.8 billion in 2021, the second-highest annual figure on record, while the component sector invested a considerable R5.7 billion in the same year.
South Africa’s success underlines the significance of the automotive industry in bolstering economic policy goals such as GDP contribution, employment, skills development, economic linkages, technology, and innovation. It is a symbiotic system where OEMs, dealers, and repair specialists collaborate to deliver on warranties, driver safety, environmental protection, spare parts availability, and information on technical improvements. As such, financial in- tuitions must be prepared to offer their services to the sector in the burgeoning sector of Ghana.
Domestic vehicle production and assembly have substantial multi plier effects on the economy and act as a catalyst for economic growth, leading to increased purchasing power. The market has seen continuous positive growth due to a boost in manufacturing, employment, industrialization, and export revenues. Currently, most of the consumers in the automobile segment belong to the affluent class. Therefore, the automobile sector in Ghana presents massive opportunities for the future as the burgeoning middle class is largely untapped in the country, leveraging the linkage be- tween financial institutions and manufacturers. With all these benefits from the auto industry, It’s more than an investment in the automotive sector; it’s an investment in Ghana’s future.
Challenges And The Road Ahead
Despite the promising growth of Ghana’s automobile assembling sector, several challenges are confronting the sector which needs urgent attention to ensure its sustainability and competitiveness.
One of the glaring challenges affecting the automobile industry in the country is Ghana’s huge gap in infrastructure development. To support the growth of the industry, there is a need for adequate infrastructure, including reliable power supply, transportation net- works, and logistics systems. These are essential for efficient manufacturing and distribution. Though the government has shown genuine willingness to develop the sector, it must pay particular emphasis on infrastructure development.
Moreover, skilled workforce is a challenge for Ghana as a developing country. Developing a skilled workforce is crucial for the industry’s growth. Specialized training and education programs are needed to meet the demand for skilled labor in the automotive sector.
Undoubtedly, to meet the quality standard required in automobile markets around the world requires the necessary quality control and that is a major problem for the Ghanaian automobile industry. Ensuring high-quality production is vital for the success of Ghana’s automobile industry. Stringent quality control measures and adherence to international standards are necessary to gain consumer trust.
As an emerging sector in the country, access to financing is a big hurdle especially to local companies trying to enter the market. The availability of affordable financing options for both manufacturers and consumers is essential. Access to credit can boost vehicle purchases, thereby resulting to expansion of assembling facilities.
In addition, the sector faces competition from established automotive manufacturers in other regions. Ghana needs to focus on product differentiation and innovation to compete effectively in the market. Also, embracing sustainable and eco-friendly manufacturing practices will not only improve the industry’s image but also align with global trends and regulations.
Ghana’s automobile assembling sector has come a long way and is on the cusp of becoming a significant player in the African automotive industry. With government’s support, increased investment, and access to regional markets, the sector has shown immense potential for growth. However, addressing challenges such as infra- structure development, skills training, quality control, and sustainable practices is crucial for its continued success.
As Ghana moves forward on the road to becoming an automotive hub, it will not only boost the nation’s economy but also contribute to the development of the West African region. The journey ahead may be challenging, but with the right strategies and investments, Ghana’s automobile assembling sector is poised for a bright future.