Ghana ready for VW operations - Fitch

Ghana and two other sub-African countries have the required infrastructure and consumer base, albeit small, to support Volkswagen's planned operations in the sub-region, ratings agency, Fitch says in a report.

According to the report, “Our telecoms team believes that VW's target markets, namely Ghana, Ethiopia and Rwanda, are developing quickly and the fast pace of growth in the 3G and 4G subscribers means that the urban population will be well placed to utilise app-based ride sharing and ride hailing, such as that proposed by VW. VW last year announced its readiness to start an automobile factory in Ghana.

Furthermore, it emphasized that “our Consumer team believes that mobility concepts can serve as an introduction to car brands that consumers will be able to afford as their disposable incomes rise, while in the meantime providing consumers with an alternative method of personal transportation.

VW is therefore providing the blueprint for carmakers to test the waters in emerging markets (EMs) in the future, which gives automotive brands some exposure and reduces the risks to operating in EMs.

In analysing a niche market for mobility concepts, the report said “We believe that there is a niche market for "Mobility Concepts", such as app-based ride sharing or shuttle-on-demand services, in the Sub-Sahara Africa (SSA)region, as there is a gap in the market between consumers who are not yet able to afford a vehicle but do not want to use public transport, such as buses and mini bus taxis.”

Additionally, it noted that the Mobility Concepts target market will benefit from professional tourists, who travel for business purposes and are unlikely to utilise traditional public transport. This niche market has remained relatively untapped due to the significant cost of vehicles n SSA countries, especially in countries such as Rwanda, Ethiopia Uganda and Ghana, which makes these markets unattractive for ride sharing operators, such as Uber.

Vehicle ownership very low

The report pointed out that passenger vehicles, both used and new, remain too expensive for the vast majority of consumers in SSA to afford, as countries in the SSA region have high barriers of ownership in the form of high import taxes and low income levels.

This is reflected in the SSA region's performance on Autos Sales Risk/Reward Index (RRI), which ranks the attractiveness of automotive sales markets based on several criteria.

Under the 'vehicle ownership, per 1,000 people' category, the SSA region only manages an average score of 17.7 out of a possible 100, significantly underperforming the global average of 50.0, which highlights how significant the barriers are for vehicle ownership in the region.

This further demonstrates the potential for ride sharing and app-based ride hailing services in the region, especially as there is a growing upper middle income bracket, which falls within the mobility concept target market of consumers who cannot afford to own vehicles but do not want to use traditional public transport.

Higher income consumers limited but supportive

The report explained that the consumer team believes that there is a small yet growing number of higher income consumers who fit into the Mobility Concepts target market.

“We estimate that the total target market size for mobility concepts in Ghana, Ethiopia, Rwanda, Uganda, Gabon and Cote d'Ivoire is around 1.5 million people”, the report added.

The mobility concepts' target market will further benefit from the growing number of business travellers who will be unlikely to utilise the public transport in the majority of SSA countries.