Demand for vehicles still remains strong in sub-Saharan Africa, however, rising inflation and limited supply of new and used vehicles will constrict vehicle sales growth in 2022, according to Fitch Solutions.
This is evident as a result of the negative repercussions of the Russia-Ukraine crisis; though economies of SSA are not as immediately exposed to the conflict, “[it] will still have significant economic effects as it will fuel inflation and erode consumer purchasing power”.
That said, there is upside risk to energy and metal producing countries, as they will benefit from higher fiscal revenues, however, costlier food and fuel subsidies will counteract the beneficial impact from increased government revenue and increased investment from high oil prices, for instance.
According to Fitch Solutions, while the vehicle sales markets in oil and gas producing countries such as Nigeria, Angola, and Cameroon boast of some upside risk, which outperformers in the wider region, most markets in the Southern Africa sub-region will underperform the wider region, Fitch said. This is due to inflation, political and economic risks which will in turn, serve to restrict consumer spending and keep the pressure on vehicle sales in 2022.
Fitch, therefore, forecasts that SSA region’s vehicle sales will increase by 5.6% in 2022, following an estimated expansion of 15.6% in 2021, to reach an annual sales volume of just over 980,000 units. “We expect passenger vehicle sales to increase by 6.3% and for commercial vehicle sales to expand by 3.7%,” Fitch said.
“We note that the elevated commodity prices offers some upside risk for our commercial vehicle sales forecast for SSA as it will see investment in this sector increase which will drive up demand for commercial vehicles for construction, business operations and logistics networks.”
Fitch Solutions
SSA GDP Growth to Decline
Owing to the impact of the Russia-Ukraine conflict, Fitch solutions now forecast real GDP growth in SSA to reach 3.4% in 2022, down from a 3.8% projection at the beginning of the year. This reflects downward revisions to growth forecasts for several of the region’s major economies, including South Africa (from 1.8% to 1.5%), Kenya (from 5.0% to 4.8%) and Ethiopia (from 5.6% to 5.2%).
The downward revisions in growth are partially offset by expectations of stronger growth in the region’s oil exporters, which will likely derive some benefits from elevated international prices. “We have therefore revised up our growth projection for Nigeria- the region’s largest economy- from 3.0% to 3.2% (with an expected decline in domestic output capping expansion).”
“Higher prices were also a factor in our revision of our 2022 growth forecast for Angola from 2.7% to 3.8% (along with an expected uptick in domestic oil production and increased investment in the oil sector). In both Nigeria and Angola, however, the government spends significant amounts on fuel subsidies, which will reduce the net positive fiscal impact.”
Fitch Solutions
Looking at country-specific impact, South Africa is vulnerable to oil price rises. The country’s transport sector accounts for around 16% of the consumer price index, while state-owned Eskom has been using diesel-fuelled turbines as an emergency power-supply measure, and has warned that higher fuel prices could mean that it is unable to run the emergency units.
Kenya, on the other hand, sources 10% of its wheat imports from Ukraine and an additional third from Russia, and is therefore vulnerable to price pressures, particularly as the country is suffering from drought. Similarly, Ethiopia sources more than 26% of its wheat imports from Ukraine, and also receives substantial food supplies from Russia.
According to Fitch Solutions, the semiconductor industry is also dealing with the impact from the Ukraine-Russia conflict which is restricting the supply of metals and noble gases used in semiconductor manufacturing. Already, there is global chip shortage which is dragging on longer than initially expected, due in large part to, the Russia-Ukraine conflict, but also due to China’s ‘Zero-Covid’ policy which is forcing factories to close.
“We believe that the global semiconductor shortage will remain in play throughout 2022 and likely well into 2023, which means that the supply of new vehicles will remain tight and that fewer used vehicles will be available for export to the SSA region given that consumers will hold on to vehicles for longer.”
Fitch Solutions
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