Sunday, June 16, 2024
BusinessEthiopia drives toward automotive future as Toyota talks continue

Ethiopia drives toward automotive future as Toyota talks continue

After over a year of negotiations, Ethiopia ramps up pressure on Toyota for a decision on a potential car plant while courting other manufacturers, as it seeks to build out an automotive industry.

Officials at the Ministry of Industry remain hopeful that Toyota will soon break ground on a highly anticipated car manufacturing plant, though requirements and deliberations have dragged on for over a year.

As delays in its final decision persist, the Ethiopian government is courting other major automakers.

State Minister Tarekegn Bululta in an interview with The Reporter stated that there are other international car makers bidding to enter Ethiopia. “We’ve told Toyota to come to Ethiopia as soon as possible. Unlike before, we have plenty of alternatives today.”

“There are a number of carmakers expressing interest but we are negotiating only with Toyota,” he said.

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During negotiations in Tokyo last October, led by Industry Minister Melaku Allebel, Toyota outlined three major preconditions for investment.

Security concerns stemming from ongoing conflicts in northern Ethiopia at the time posed one of the biggest sticking points for Toyota, according to Tarekegn.

“When we traveled to japan to negotiate with Toyota, the Pretoria agreement was not signed and the northern Ethiopia conflict was ongoing. So they were concerned,” said Tarekegn.

With the Pretoria peace agreement now in effect, officials hope peace and stability will help accelerate Toyota’s entry.

The second major requirement Toyota outlined was assurances around procurement contracts from the Ethiopian government.

“They asked for a long-term agreement in place to purchase Toyota vehicles before committing to a factory here,” Tarekegn explained. “This will be considered from Ethiopia’s procurement perspective.”

Obtaining a stable foreign exchange supply was the third condition raised by the manufacturing giant. Both sides also discussed Ethiopia’s tax system, which Toyota viewed as relatively heavy.

Ethiopia’s embassy in Japan is now following up directly with Toyota executives to address these preconditions. The State Minister says the government’s decision to request Toyota open a factory partly stems from the market share it boasts.

To appeal to Toyota and other interested manufacturers, officials at the Ministry are drafting new policies and strategies, including an import substitution framework. A comprehensive automotive policy is also in the final stages of preparation.

Tilahun Abay, advisor to the Minister of Industry, stated that the finalized automotive policy only requires one last round of stakeholder consultations before submission to the Council of Ministers.

“This will include input from the international carmakers seriously considering Ethiopia as an investment destination,” he said.

The Ministry has engaged industry players on three occasions to refine the draft strategy. Support from the Japan International Cooperation Agency (JICA) also aided the preparation work, according to Tilahun.

Three institutions are now tasked with ushering the policy through the final stages. Alongside the Ministry of Industry, the Metal Industry Development Centre will leverage its sector expertise. The African Association of Automotive Manufacturers (AAAM) brings a cross-border perspective to bear. Teams from AAAM are scrutinizing Ethiopia’s tax competitiveness against peer nations in Africa.

Tilahun believes that the policy’s ratification “cannot be delayed any longer.”

“Delay will only diminish the appetite of car companies waiting in the wings,” warned Tilahun. “So I do not think the ratification will take time.”

However, Tarekegn clarified the automotive strategy cannot be ratified until the overarching industry policy receives approval first.

“The industry policy preparation is already finalized. Once the industry policy is approved, then strategies will be ratified for the subsectors, including the automotive subsector.”

All parties aim to present the ratified automotive policy to ministers by October 2023.

One key plank within the upcoming automotive strategy is a planned ban on importing used vehicles, which had crowded out room for local manufacturing to thrive.

There will also be customized incentive packages for automakers, according to location and other investments. Duty-free import of factory equipment and multi-year tax holidays ranging from three to 10 years are on offer.

Export incentives also aim to reduce input costs for manufacturers tapping overseas markets, as MOI calculates input-output coefficients.

During a recent interview with The Reporter, Martina Biene, managing director of South Africa-based Volkswagen, stressed the importance of workable export incentives in Ethiopia’s strategy.

With domestic new car demand still nascent, Volkswagen would need to ship vehicles to nearby East African countries. Annual consumption would need to surpass 100,000 units for projects of Volkswagen’s scale to prove feasible, according to Biene – still higher than Ethiopia’s present trajectory.

Tarekegn says the main issue for investors is the ratification of an automotive policy. He stated that several incentive packages have been included in the automotive strategy, including an incentive to encourage export of Ethiopian made cars, while the import substitution policy encourages local consumption.

“Ethiopia’s import volume is huge. So, until that is balanced with local production, the import substitution incentives will be in place”, according to Tarekegn, who says the first criteria is to attract international automakers since “There is no doubt Ethiopia has a sizable and growing consumer market.”

Toyota has expressed general approval of Ethiopia’s moves to curtail used vehicle imports. However, the automaker’s final commitment is still pending amid ongoing talks.

Other manufacturers from China, India and beyond are also courting Ethiopian officials, eager to make inroads, according to Tarekegn.

Volkswagen representatives visited recently as well. “They expressed interest in investing, but so far Toyota remains the only partner engaged in concrete negotiations,” Tarekegn noted.

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