We are revising our forecast for 2015 up to 15% after a strong sales performance in 2014. The latest data available for 2014 indicates that sales of brand new light vehicles increased 82.2% in 2014 . BMI attributes this growth to improvements in dealership networks and steady growth in private consumption in the country. We predict steady growth in new light vehicle sales from 2016 to 2019, averaging 7.6%.
However, we stress that owing to the markets erratic growth, low numbers of total sales, and limited availability of data these numbers may be subject to revision over 2015. Even with this growth, we believe that only 10,833 new light vehicles will be sold in the country annually by 2019.
When compared with a population of some 49.3mn, it is clear that new cars will remain unaffordable to the vast majority of Tanzanians for many years. Instead, used cars will continue to be the more significant market. In light of this, potential gains for investors are weighted towards the commercial vehicles markets, owing to the growth of Tanzania's mining and infrastructure sectors.
In light of this, potential gains for investors are weighted towards the commercial vehicles markets, owing to the growth of Tanzania's mining and infrastructure sectors. Our Infrastructure team remain bullish on Tanzania's infrastructure industry with growth in the industry likely to increase demand for commercial vehicles used in the industry. The government is investing heavily in improving its road and transport infrastructure, which should boost demand for heavy commercial vehicles (HCVs) owing to the construction industry's intensive use of heavy trucks. Added investments into the country's natural gas and power sectors will also increase construction activity in the country, leading to further CV demand. To highlight the strong impact these sectors will have on CV demand, our Infrastructure team points out that transport and utilities infrastructure investments make up USD30.9bn of theUSD33.9bn of planned, financed or under infrastructure projects in BMI's Key Project's database for Tanzania.
There are some reasons for long-term optimism on the outlook for new car sales as well. We are bullish on Tanzanian GDP growth, as investment flows into the country's nascent offshore oil and gas sector and infrastructure improvements raise the country's attractiveness for foreign direct investment. This will be supported by growing private consumption. We forecast that real GDP growth in Tanzania will come in at 6.4% and 6.9% in 2015 and 2016, respectively, following an estimated 6.9% in 2014, just below the government's target of 7.0%.
Tanzania has the second highest projected average annual GDP growth over the next five years among the East African countries we cover, but it also has one of the lowest levels of car ownership, at an estimated 4.7 passenger cars per 1,000 people in 2014. This suggests there is considerable long-term potential in the new vehicle market, which is reflected in our largely positive forecast for the next five years which is growing from a low base.
That said, for the foreseeable future, used cars, mainly from Japan, will continue to account for the lion's share of the vehicles on Tanzanian roads. BMI believes that this trend of rising demand for used cars will continue.
On the negative side, the combination of low vehicle ownership, and a slowly depreciating shilling, high import duties and the limited supply of new vehicles will all continue to affect new vehicle purchases through their effect of increasing prices. Thus, for most private consumers, used cars will still be the most accessible route to car ownership. More downside to new vehicle market will come from the fact that there is no upper age limit on used imports to encourage a switch to new alternatives. Only a 20% tax on cars over 10 years old has been applied to models being directly imported from Japan.
Competitive Landscape: New Competition For Toyota
Toyota Motor has had a presence in Tanzania since 1965 but will face much competition over the next five years and beyond. The commercial vehicle (CV) market has seen the largest rise in competition over the last few years. In March 2014, Mitsubishi Fuso Truck and Bus (MFTB), a JV between German automaker Daimler and Japanese carmaker Mitsubishi, introduced its FUSO truck range in Tanzania. The new trucks include the FUSO 'FA/FI' light-medium and the 'FJ' medium-heavy-duty, reports Automotive World. The move is in line with the JV's aim to widen the choice for customers and increase its presence in Africa and Asia. The trucks had already been introduced in Kenya and Zambia.
In the passenger car segment, growing competition has been less intense. However, Toyota will begin to experience pressure from new market entrants, especially Chinese producers marketing their products aggressively in the East Africa region. For example, in September 2014, Geely Holding Group announced it was considering expanding its sales operations into Tanzania if it was able to find a suitable dealership partner.
Following MFTB, truck and bus manufacturer Ashok Leyland announced it was making its move into the country. The company had cited Africa as key to their global strategy and, in November, won contracts worth a combined USD79.2mn to supply commercial vehicles alongside spare parts, training and consultancy services in both Tanzania and Zimbabwe. Alongside Chinese manufacturers Foton and the Golden Dragon Bus Company, MFTB and Ashok Leyland, these new entrants all represent the strong wave of competition Toyota Motor is experiencing in the country.
Despite this improving near-term backdrop, Tanzania remains at the bottom of BMI's auto industry Risk/Reward Index for the Sub-Saharan African autos sector, with an overall score of only 15 out of 100, sitting below Malawi, Cote D'Ivoire and Angola and well below the 25.3 average score for the Africa region as a whole.