July 26, 2024
Road transport covers 95% of public mobility in Ethiopia. There were 1,432,635 vehicles in use as at June 30, 2023. The number of passenger vehicles (PVs) was 939,239, constituting 66% of the total vehicle fleet during the year, of which 459,340 (49%) are Two- and Three-Wheelers and 290,911 (31%) are Automobiles. In terms of regional distribution, Addis Ababa hosts half of the total in-use vehicles (51%) followed by Oromia (20%).
Exhibit 1: Number of Vehicles in use
The size and pace of growth of the fleet is constrained by foreign exchange (FX) shortage, low level of local production and high tax on second-hand vehicles (which is as much as 500% all in all). Despite these challenges, the overall vehicle population grew by an annual average rate of 9% during the last decade.
As adoption of e-mobility is quickly evolving, the number of electric vehicles (EVs), which have been a rarity in the preceding years, reached 100 thousand – a significant rise from last year’s level (estimated to have been between 3,500 and 5,000). Though data doesn’t provide the mix of the vehicles, it is highly likely that this sharp growth in the number of EVs is largely driven by motorcycles. The number of EVs on the roads so far implies a 6.4% penetration of EVs in the total fleet signaling that the Government’s target of 10% by 2030 is within reach. EVs production and trade are now free from value added tax, excise tax, and surtax.
Supply from Import
Ethiopia’s automotive market is import-driven, imported vehicles covering 95% of the total yearly supply (versus 70% in Kenya). On average, USD 825 million has been spent for motor vehicle imports every year over the past decade. The supply from import has been strained mainly due to FX scarcity persisting in the country, prohibition of FX supply for import of internal combustion engine (ICE) automobiles and Three-Wheelers since October 14, 2022, and affordability challenge owing to high import tax and inflation. As a result, value of vehicles imported has declined by 22% CAGR between 2014 and 2023, standing at USD 124 million in 2023 from USD 1.2 billion in 2014 (Exhibit 2).
Exhibit 2: Road motor vehicle import
Supply from Local Production
The local production of automobiles is in an early stage. The average number of locally assembled vehicles has been 9,368 per year (2015-2019), motorcycles accounting for 89% of the products. In addition, investment of OEMs and such locally favorable brands as Toyota are inexistent in the local auto production. Considering the rate of the growth of the local production (CAGR of 98% during 2015-2019), the Government’s aspiration to raise the domestic market share of locally manufactured import substitutes from 30% to 60% (by 2030), and the late entrants to the market (like Marathon Motors Engineering PLC and Belaynehe Kindie Engineering Complex), a large-scale production looks apparent.
Infrastructure
Ethiopia’s investment in the development of roads network has been commendable. As per its 10-years development plan (2021-2030), the Government has planned to build 102,000 kilometers of additional roads to raise the overall national road network from 144,000 kilometers to 246,000 kilometers. The total road network has now reached 165,000 kilometers.
With regard to power supply, Ethiopia generates power with installed capacity of 5,273.77 megawatts (MW) from 22 power stations. 91.3% of the power generation comes from clean sources (Hydro, Wind, Steam and Geothermal). In addition, the Grand Ethiopian Renaissance Dam is expected to generate 6,450 MW once completed (750 MW of which is already in use). The overall power generation capacity fulfils the power required to implement the nationwide e-mobility plan in the Ethiopia’s Long-term Low Emission and Climate Resilient Development Strategy [2020-2050].
Understandably, development of EV Charging infrastructure has to keep pace with the growth in EV uptake. Accordingly, building charging stations is planned as part of the corridor development underway in Addis Ababa. The recently launched initiatives of TotalEnergies Marketing Ethiopia and Cardinal Industrial PLC can be referred to as instances of private sector participation to rollout EV charging stations across the country. Investment on EV production and EV charging stations in Ethiopia will almost be a net-zero carbon emission business endeavors.
Fuel Supply
On the downside, Ethiopia does not have any oil resources, and is currently dependent on imported fossil fuels (worth USD 3.8 billion in 2023), with half of the consumption going to fuel the transport sector. In a bid to save FX from fuel import bill and to realize a climate resilient economy, the Government has ended the fuel subsidy which has been in place for decades. The move necessitates a market shift in favor of EVs.
After-sales Service
The after-sales and maintenance service market is highly fragmented and dominated by small garages which are widely accessible. Due to affordability challenges, vehicle owners often choose cheaper non-original spare parts to OEM products.
Motorization Rate
With a population of 110 million people which increases by 2.3% per year and GDP rising by 7.5% every year, Ethiopia has one of the world’s lowest rates of car ownership, estimated at 14 vehicles per 1,000 inhabitants. Despite a significant rise from 2 vehicles per 1,000 inhabitants in 2014, the level of motorization is still far behind that of the world (209 in 2020), Africa (49 in 2020) and Kenya (28 in 2014). Affordability is presumably the major contributor for the low level of car ownership in Ethiopia (than the strain in the supply side).
Market Size
Reliable data on vehicle sales is not publicly available. The market size, measured by additions to the total fleet size, is estimated to be 31,500 vehicles. Given the low motorization rate, improvements in the socio- economic drivers of the market, and the prospect for the growth in the supply from local assembly, the market size is expected to grow further. Accordingly, volume of new sales is expected to reach 50,000 units by 2035.
Market Drivers
The overall prospect for the Ethiopian market is to grow further. The following is summary of the key market drivers:
Socio-economic developments:
- Growth in the economy and disposable income.
- Increase in the urbanization
Government’s strategy and commitment. The following are three of the Government targets pertaining to the automotive market:
- Raising transport service coverage from 67% to 100% in rural areas and mass transport service coverage from 34% to 70% in urban areas;
- Investment of USD 13.96 billion to electrify mobility (EVs and charging facilities). Out of this, USD 5.33 billion (38%) is expected to be invested by 2030; and
- Increasing the domestic market share of locally manufactured import substituting products from 30% to 60% (by 2030).
Exhibit 3: Summary of key socio-economic indicators
Current market gap as measured by the overall vehicle penetration rate.
Sustainability of power supply.
Ready-to-use Industrial Parks.
Opening of import, wholesale and retail trades to foreign investors, except for fertilizer and petroleum.
Proximity to heavily import dependent countries (the East Africa).
Shortage of FX, mobility restrictions due to internal conflicts and instability, and inflation are the key challenges that have to be dealt with by the Ethiopian Government.