Second Lease of Life for Used Vehicles in Developing Countries

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Posted on 15th October 2017 – Car History

Reducing the volume of refuse that we generate in industrialised nations is an increasing necessity as landfills are bursting at the seams. In that respect, recycling what you no longer need makes a difference, whether you sell it on ebay, take it to the nearest recycling centre or repurpose it.

There is one exception though: used cars. From Belgium to the US, preloved vehicles are shipped around the world for a second lease of life. It sounds like an ingenious way of reusing vehicles that would otherwise head for the scrapyard, doesn’t it? Well, the picture is more complicated.

Between the late 90s and the late 00s, the number of secondhand cars being shipped to developing countries when they were discarded by the so-called rich countries almost quadrupled from around 1.25 million to 4.8 million, according to research from the Centre for Sustainable Transport in Mexico.

The reason why those vehicles are no longer wanted is that they don’t meet new environmental and mechanical regulations aimed at reducing pollution and making cars safer. This means that developing countries are, in effect, flooded with dangerous vehicles that aren’t fuel-efficient and contribute to pollution - when they are often the same countries under international pressure to control their CO2 emissions.

For developing countries with limited finances, those cars, sold cheaply, often represent the only way to own a vehicle, which can be esential in countries where public transport is next to non-existent.

In areas of the world where maintaining a paper trail is impossible, importers and resellers can be as creative as they feel. They will, for example, use imported old engines, install them in a new chassis and sell the car as new, whereas it has, in fact, a very polluting motor.

Mexico, due to its proximity with the US, is the country that sees the largest flow of imported used vehicles in the world. Following a trade agreement by the then-President Vicente Fox, Mexico allowed the import of secondhand vehicles from the US in 2005. The result was a massive influx of vehicles that had failed emission testing in the US and couldn’t be driven there. But in Mexico, there is no such test and they can be sold for a significant profit.

Mexico is one of these countries where an inadequate public transport system drives people to purchasing polluting and old vehicles. Outside of the capital, going from A to B is a bit of an adventure, with informal microbuses following no particular schedules, vans or pickup trucks. The market offers no real competition which translates into high prices in any case. According to the same study by the Centre for Sustainable Transport in Mexico, low-income Mexicans spend 60% of their income on public transport. New vehicles are completely out of reach and a cheap imported car is often the only option they have.

In addition, because the country hasn’t experienced the volatile crude oil prices that rich countries have because it is subsidised by government, Mexicans don’t think twice before buying fuel-guzzling vehicles that would get discarded in horror by their Americans owners when they became too expensive to fill. So, unwillingly, the government continues to support the very same vehicles that cause so much pollution.

South America is not the only continent to struggle to establish environmental policies. Africa has also seen a similar phenomenon. In November 2015, the world’s largest car manufacturers embarked on a concerted effort to breathe life into Africa’s auto industry, as economic projections flagged the continent as the next big market. The African Association of Automotive Manufacturers has since then been working with key African governments to create the right environment policy but also fight against a flood of second-hand vehicles.

Consultancy Deloitte estimates that 80% of cars in circulation in Ethiopia, Kenya and Nigeria are used cars. According to the Kenya National Bureau of Statistics, the number of imported vehicles tripled between 2003 and 2012.

African governments are therefore developing policies to discourage the import of second-hand cars into their countries. Vehicles over eight years old are forbidden in Kenya, for example, with plans to reduce this number further; while Nigeria has increased import duty on used cars. These measures seem to get the desired results so far as imports of cars from the US plummeted by 60% from its peak to 2015.

Another crucial factor in creating a market of fuel-efficient, cleaner and safer vehicles is to develop maufacturing capabilities locally.

South Africa is the continent’s leader in this sector, with successful equipment manufacturers and an active community of suppliers, but between the southernmost country of Africa and Northern Africa, there is very little car manufacturing.

Kenya has three assembly plants but their role is limited to assembling vehicles from parts that are imported and doesn’t require any input. However, the country is determined to turn the tables on the situation and has put in place incentives such as creating special economic zones bene?ting from tax holidays and low utility rates.

It has also introduced tariffs on imported auto components that could have been manufactured locally to encourage production and the development of skills in the country. This initiative led to an increase by 31% in parts production between 2013 and 2014.

Nigeria has adopted a similar strategy. In 2014, in its Automotive Industry Development Plan, it pledged to create the infrastructure necessary to vehicle production. They also introduced tax incentives in the form of a discount on duty fees of 35% on cars and 20% on commercial vechicles if, for two finished vehicles imported, foreign car manufacturers built one in the country.

In addition, it is also trying to boost skills and investment to develop a local component industry, but this is making slow progress and vehicles assembled in the country are still put together from imported kits of parts.

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