On Sale: The Growing Car Market and the Emerging Middle Class Featured

Seeing how the newly constructed eight lane road on Africa Avenue is swamped with cars at rush hours gives an indication as to what is happening in the city’s car market. Every day more than 40,000 cars of different models and brands pass through this corridor alone. Yet this is not unique to this specific street. Every major road in the city is seen crowded with cars almost all the time. As the number of urbanites who are joining the ranks of the middle class is increasing so do the number of cars.

In recent years, either brand new cars directly from their manufacturers or assembled locally, or the usual suspects, second hand cars imported after giving services in the Middle East or somewhere else  are flooding the city under construction: Addis Abeba, the African capital.

The number of cars in Ethiopia in proportion to its population has been very low even by Sub-Saharan Africa standards. A decade ago, while there was only one passenger car for each 1,000 Ethiopians the ratio was more than 10 for Sub-Saharan Africa, according to the World Bank.

Samuel Belay, an electrical engineer has been dreaming to own a car since he was in high school. After graduating from Addis Ababa University and securing a fairly good job, he started saving belligerently. With a lending from his sister who lives in the US he bought a second hand Toyota Corolla ‘Lift Bag’ from a second hand car importer two months ago. “Having a car is very vital these days and these cars are durable, relatively fuel efficient and their parts are cheap and available’’ he says.

The streets of Addis Abeba are packed with new car drivers like Samuel, who has bought cars in the past few years. For many this is an indication of the growing number middle class. It has been sometime now since economists start using ownership of car, especially in developing countries, as a card for membership of the middle class. In the capital, cars are now becoming a purposeful item, rather than a luxury or something used to show the status of a person as in the past. With the advent of fast moving businesses, the growing pace of the economy and the booming of relatively affluent middle class, rides are becoming one of the basic necessities for a modern city life.

Biniam Bedaso (PhD), a researcher at Ethiopian Development Research Institute (EDRI) agrees with the idea. He told EBR in an email interview “The demand for cars is usually taken to be a good indicator of the middle class. The urban professional class with sustainable monthly income well above poverty line plus people engaged in medium scale commercial activities own cars in several emerging countries, and the same is true in Ethiopia.”

Tesfaye Mezmur, who works in a consultant firm that he co-founded, is one of these people. He was negotiating to buy a car while EBR visited United Car Sales, one of the used car dealers in the city located around the locality commonly known as Hayahulet. “These days everything is moving fast. I am buying this car because I needed it to facilitate my work,” He told EBR.

According to a data from Ethiopian Revenues and Customs Authority (ERCA) in the past five years, from 2008-2012 alone, 58,253 automobiles have been imported to the country. Only 7,526 were imported in 2008 but the number has almost tripled to 19,791 by 2012. This is a remarkable growth of more than 162 pct.  “The number could go even higher if we add those smuggled through the long borders of the country,” an officer from Ethiopian Transport Authority who would like to stay anonymous told EBR.

Kalkidan Getachew, general manager of Addis Abeba Car Sales and Rental plc, located on Haile G/Selassie Avenue says, “The demand for cars has increased dramatically particularly in the past five years despite the fact that the price has also skyrocketed. In fact, we were able to sell at least one car per day before the highway was closed in relation to the railway construction  and make it hard to access our shop.”

Generally Toyota cars are the prefered items in the market, and the demand for the most latest one like the Yaris has also increased. People buy the latest 2010, 2011 and 2013 models. They pay up to ETB 1.6 million for the latest ones according to kalkidan.

Toyota cars are preferred because of their relatively cheaper prices, availability of spare parts, presence of relatively higher number of mechanics who specialize on them and better resale value, says a sales person at the car dealership. “The new models are also relatively fuel efficient and convenient for parking because of their small size.” He adds.

The high demand of cars in the country is  also driving the growth of car assembling lines in recent years. The number of car assembly companies which import parts and assemble them here have now reached about 11. In 2007 the first 132 cars were assembled, this number has increased to 1,232 in 2011 data from ERCA reveals.

According to ‘WardsAuto’ that writes about cars and automobiles, demand for Lifan cars is growing a lot in Ethiopia.  Roger Tian, deputy general manager of Lifan in Ethiopia, told the media that sales have grown an annual average of 30pct for the past three years, and the auto maker anticipates they could climb 40 to 50pct in 2013.

The perception towards assembled cars seems to be changing for the better. Yared Siefu, sales manager of Lifan Motors told EBR that after seeing the performances of assembled cars in the streets and hearing positive stories from relatives and friends the public perception has dramatically changed. The demand for Lifan cars doubles in just a year’s time, form 2009 to 2010. Lifan has sold about 3,000 cars since it departed from Holland Cars in 2009. Cars at Lifan Motors are sold for prices that range from ETB 275,000-599,000.

Other giant companies in the country such as Mesfin Industrial Engineering (MIE) and Metals and Engineering Corporation (METEC) are also taking part in assembling cars.

The market for directly imported brand new cars is also growing fast. Mintesinot Tadesse, finance and administration manager of Marathon Motors, owned by the legendary Athlete Haile Gebresillasie and the sole importer and distributer of Hyundai cars in Ethiopia explains, “A few years back several Ethiopians prefered second hand cars for different reasons but now people are buying brand new cars”. Like other exclusive agents, Marathon Motors imports the accessories and parts of the cars it distributes. Professional technicians are also trained and hired to tend to its customers.

The sales volume of brand new Hyundai cars in the country has been growing 30 to 40 pct annually since 2008. Last year alone the company has imported and sold about 400 cars. Depending on the model, a brand new Hyundai car is sold starting from ETB 435,000 to 1.4 million including taxes. Marathon is planning to build an assembly line of Hyundai cars soon, following the growing demand.

One of the unique features of the Ethiopian car market is the relative expensiveness of cars in comparison with other countries. Even when compared with car markets of other land locked Sub-Saharan African nations. For instance while it is possible to buy a used Toyota Corolla of the 90s model, in a good shape from USD3, 000-5,000 in Uganda and Rwanda it is hardly possible to acquire a similar one with less than USD10, 000 here in Ethiopia.

“The relative expensiveness of cars is mostly associated with the hefty import tax levied on them,” Biniam asserts. Kalkidan adds to this; the lengthy and costly process of importation as well as other challenges like lack of foreign currency and bank loans for importing cars in Ethiopia made the prices high.

In many developing countries, home ownership is also another strong indicator of the middle class. Unfortunately, in Ethiopia homes are very expensive, particularly in Addis Abeba. “In Ethiopia, the housing market is highly distorted with the imperfect  land market. Therefore, the only viable option to store value for many middle class folks is through buying a car” Biniam adds.

The appreciation of cars’ value is also another unique character of the Ethiopian car market. Any car bought a couple of years ago could be sold today with a huge amount of “profit”. A Toyota Corolla of the 90s model which has been bought five years ago as a ‘second hand’ with a total of ETB 150, 000 could be sold now with more than 50 pct price increment.

Unfortunately one missing element in the growing Ethiopian car market is credit services, which the sector is quite known for in the world. Mintesinot recognizes its importance, and plans to facilitate it in the future. Yared says Lifan had started it once but challenges arise with collaterals required by the banks. If the right mechanism is put in place, credit services are expected to push the demand even further.

Berihun Mekonnen

EBR Staff Writter

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