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Booming ride-hailing sector to boost vehicle sales

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While vehicle sales in Sub-Saharan Africa (SSA) are expected to continue on a downward spiral this year, the burgeoning ride-hailing industry in the region offers automakers and car dealers an opportunity to develop a new sales market.

This is according to the Sub-Saharan Africa Autos Report, compiled by credit intelligence provider Fitch Solutions, which provides a landscape of vehicle sales in the region, trends and a forecast for the market.

The report includes the Autos Sales Risk/Reward Index, which ranks the relative attractiveness of the market for vehicle sales activities, based on several ‘risks’ and ‘rewards’.

The report forecasts the region’s vehicle sales market is expected to slow by 5.6% year-on-year, from 930 000 units in 2021, as countries struggle to record full economic recovery, since the onset of the COVID-19 pandemic in Q1 2020.

This is still an improvement, compared to a contraction of 23.5% in 2020.

The commodity prices, along with high used vehicle prices (given the SSA market is dominated by imported used vehicles which are in short supply amid the global chip shortage), will see continued strong headwinds for vehicle sales, notwithstanding strong upside risk by the end of the year if currencies strengthen.

However, it notes the blossoming ride-hailing sector in the region has the potential to save the market, by becoming a key driver of a new vehicle sales vertical, as it allows for income earned through rides to contribute towards down-payments for new vehicles.

“Automakers and car dealers have an opportunity to tap into this sector by partnering with financial intermediaries, such as commercial banks and fintech start-ups, to offer tailor-made vehicle financing solutions intended for ride-hailing services.

“For example, in August 2021, Uber, along with Moove, raised $23 million to offer drivers and prospective vehicle owners financing options based on key metrics, such as the number of rides performed and income generated from rides completed.

“Vehicle repayments are then deducted from the borrower and the remainder of the balance is debited to the borrower’s Uber account. We believe this offers a less risky way for the financial sector to extend loans intended to purchase new ride-sharing vehicles in the region,” notes the report.

According to Fitch Solutions, the majority of markets in SSA are characterised by low incomes and high borrowing costs, which impedes the development of a new vehicle sales market. In addition, liberal regulations with regards to the importation of used vehicles add more pressure to the development of a new vehicle sales market.

Under the ‘vehicle ownership per 1 000 people’ indicator in the Autos Sales Risk/Reward Index, the average number of vehicles owned in the region is 30. In 2021, the majority of countries in the region had 30 vehicle owners or less per population of 1 000 people, including SA (35), Botswana (50), Gabon (50), Zambia (20), Côte d'Ivoire (5), Namibia (25) and Angola (5).

While SA’s ride-hailing market is dominated by international players Uber and Bolt, over the past few years the industry has seen increased competition, with new African start-ups, such as InDriver, DiDi, NextNow, Taxi Live Africa and Africa Ride entering the market.

“The opportunities presented by the ride-hailing sector in SSA offer automakers and car dealers a source of demand for a wide range of vehicle types to tap into. For example, high passenger capacity ride-hailing services would give rise to demand for minibuses, by tapping into a market currently serviced by traditional and well-established but highly-informal transport operations,” notes the report.

It also highlights some short- to medium-term risks to the favourable outlook for ride-hailing in SSA. These come in the form of regulatory pushbacks from governments and retaliatory actions such as intimidation tactics against the deployment of ride-hailing services by existing public transport operators.

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