Yoseph Asfaw, a mid-level manager of one of the branches of Bunna Bank, was excited when he learnt he was eligible to take out a two million birr interest-free loan, courtesy of the performance his branch achieved last fiscal year. He did not hesitate to take the opportunity. After a few weeks of deliberation about what to buy with the money, he decided to purchase a vehicle. His choice was the 2022 model of the Suzuki Dzire, the most sought-after automobile in the car market. He was asked to pay 1.5 million birr.
“Are you sure I will recoup the money within a short period of time,” Yoseph asked the car retailer.
“Trust me, give it one month, and the price will surpass two million birr,” the retailer replied.
The trader was right. The price of Dzire 2022 has shot up to 2.2 million now, a development that helped Yoseph net a profit of 700,000 br in just a month. “You cannot get this money by saving or opening a trade store. And not surprising at all, given the volatility of the market,” said the banker, adding, “I don’t want to sell it as this is a treasure whose value appreciates every second, and the most profitable venture without adding value.”
It is not unusual to see the price of vehicles spike in Ethiopia. Cars are believed to be a big treasure, the same way apartments or houses are. A car costing less than USD 2,000 in neighbouring countries, the Toyota Vitz, costs nine times more in Ethiopia. The high tax on old cars, which could reach 500 percent, was used to justify the hike. Though the same is true for old cars now, the story is different in the case of new vehicles, a category given to automobiles produced within three years of imports.
Three years ago, the government introduced a new tax law to encourage the imports of new cars while discouraging the old ones. Such a reform was meant to make new cars cheaper, though it was a target that never materialized. A case in point is the Dzire 2022, an automobile imported through a duty-free scheme and flooded the market, along with other brands of Suzuki, including Espresso and Swift.
Toyota is still the dominant player in the vehicle market, though traders say Suzuki is now commanding the lion’s share, probably as high as 60 percent in the last two years. It is partly because the cost of new Toyota vehicles is higher than in the past, as older ones were less costly. For the same reason, Suzuki is the most preferred brand for importers now because the lower the cost, the lower the amount of foreign exchange importers needs to get.
“We get the forex from the parallel market with a premium, as banks barely cover the cost of the imported cars. Suzuki has become a preferred option for many importers as it is less costly and brings a better return with a higher profit margin than Toyota, which is expensive and requires a tiresome process to get the forex needed to import it from countries like Dubai,” said an importer.
Last year saw a spike in demand for new vehicles, largely due to the huge amount of finance availed by banks to borrowers eligible to take a loan to buy automobile. During the third quarter of the last fiscal year, 330 million birr was imported, twice what was imported in the preceding quarter. It is also 20 percent higher than what was imported during the same period in 2020/21. The increase is the outcome of the growing demand in the market, according to retailers. But that comes with a cost.
“The demand is way higher than the supply. We are receiving orders more than what is available in our stock,” said Ezra Hailemariam, marketing manager of Tamrin, one of the major market players in the car market and known for importing Suzuki brands.
The change in the global market has also contributed to the spike in price, according to Ezra.
“Over 90 percent of Suzuki cars are imported from India, which is not producing much now due to a shortage of inputs because of the tension between China and Taiwan, which is the major supplier of semiconductors for the factory in India,” Ezra added.
According to a senior company official, Maruti Suzuki said “it could not produce 51,000 units in the April-June quarter owing to the ongoing chip shortage situation.”
India’s largest carmaker, which sold 1.4 million vehicles this year, underscored that the semiconductor shortage is a challenge in planning its production activities.
“The electronics component shortages are still limiting our production volumes. In this quarter (Q1), the company could not produce 51,000 vehicles,” said Maruti Suzuki India (MSI) CFO Ajay Seth in an interview with a local media in India.