International Comparison ofAutomotive Assembly Policies
For Inviting Global Players to Ethiopia and Supporting their Expansion

Nairobi, Kenya

Johannesburg, South Africa

Near Addis Ababa, Ethiopia

Bangkok, Thailand

Kenichi Ohno (GRIPS)
Addis Ababa, February 2019

Topics
1. Review of global automotive industry
2. Features of Japanese automotive industry
3. Issues raised by Japanese automotive assemblers
concerning Ethiopia
4. Comparing Ethiopia and Kenya
5. Import duty and tax structure: selected Asian cases
6. Policy suggestions

Introduction• Japanese cars and trucks are highly visible in Ethiopia (as well as inAfrica). However, their producers are slow to come to Ethiopia forassembly. To understand the reason why and how they can be
encouraged and supported, the GRIPS Development Forum (GDF)
conducted a series of studies and surveys.
• Japanese automotive makers were interviewed in Tokyo (producersof passenger cars, commercial vehicles & construction equipment).
• Sales agents of Japanese vehicles in Ethiopia were also visited.
• Japanese automotive firms often compare Kenya and Ethiopia. GDF
visited Nairobi in August 2018 to interview Kenya’s industry ministry
and agencies, business NPOs and Japanese and local firms.
• Tax & tariff structure on Japanese cars imported to the rest of Asia
were examined for selected countries, models and components.
• Automotive industry studies were conducted in several countries in
Asia and Africa.

Global Automotive Industry• Global new auto sales is about 100 million per year, growing 1% to
5% annually (depending on year). China contributed most to thisgrowth, but its market slowed down recently.
• Global firms with full technical capability to lead and innovate areless than 20. They are from Japan, Germany, France, US and Korea.
They compete fiercely for global market and new technology.
• Technology is changing significantly with e-cars, auto-drive, AI, carsharing, etc. Global giants are seeking mutual alliance to share huge
R&D costs. New players (Tesla, Google, etc.) are emerging. How
effectively China can join this race remains to be seen.
• Other auto producing nations (India, Mexico, Brazil, Indonesia,
Thailand, Vietnam, South Africa, etc.) are outside the global
frontline race. They mainly rely on technology of global giants.
• Their attempts to link with giants, supply components domestically,
train engineers, and even create national cars met with moderate
success in some countries but dismal failure in others.

Global Automotive Market, 2017
About 100 million new vehicles are produced and sold each year

Sales

Production
Other
Korea
ASEAN

China
Korea
ASEAN

97.3 million
vehicles

India

Other

China

96.8 million
vehicles

India

Japan
Japan

USA
EU

USA

EU
Source: JETRO, Trends in Automotive Production and Sales in Major Countries, Nov. 2018.

In Ethiopia, total sales in 2016 was 7,500 new vehicles (0.008% of global market),plus 28,020 used vehicles. (Cf. Myanmar 20,000 new vehicles/year)

Global Leaders: Sales Ranking 2017
Company
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16

VW
Renault-Nissan-Mitsubishi
ToyotaGM
Hyundai
Ford
Fiat-Chrysler (FCA)
Honda
PSA (Peugeot, Citroën, etc.)
Daimler
SuzukiChangan
BMW
Mazda
Tata
SubaruSUBTOTAL
Other
TOTAL

HeadquarteredinGermany
France
Japan
USA
Korea
USA
FranceJapan
FranceGermanyJapan
China
Germany
Japan
India
Japan

Sales
(million)
10.7
10.6
10.4
9.6
7.3
6.6
4.8
3.7
3.6
3.3
3.2
2.9
2.5
1.6
1.3
1.0
83.1
13.7
96.8

Share
11.1%
11.0%
10.7%
9.9%
7.5%
6.8%
5.0%
3.8%
3.7%
3.4%
3.3%
3.0%
2.6%
1.7%
1.3%
1.0%
85.8%
14.2%
100.0%

Source: Automotive Jobs, https://automotive.ten-navi.com/article/29623 (accessed January 31, 2019).

Producing Nations without Frontline Technology
UK, Italy
They are (were) leaders in high-end
models but are without volume orcompetitive edge for popular models.

Globalranking

Country

Production(million units)

Share

7

Mexico

4.07

4.2%

8

Spain

2.85

2.9%

9

Brazil

2.70

2.8%

11

Canada2.20

2.3%

Thailand, Mexico, Canada, Indonesia,
Poland, Hungary, South Africa, Turkey,
Czech Republic, etc.
These countries offer workers and plantsites for global giants which are
attracted to low wage, incentives, tariff
or FTA privilege, etc.

12

Thailand

1.99

2.1%

13

UK

1.75

1.8%

14

Turkey

1.66

1.7%

15

Russia

1.55

1.6%

16

Iran

1.52

1.6%

17

Czech Republic

1.42

1.5%

18

Indonesia

1.22

1.3%

19

Italy

1.14

1.2%

Malaysia
Tried to create a national car (Proton)with heavy support and protection, but
as tariffs come down, Proton suffersfrom the lack of competitiveness. Now
receiving Chinese assistance.

20

Slovakia

1.00

1.0%

21

Poland

0.69

0.7%

22

South Africa

0.59

0.6%

23

Hungary

0.47

0.5%

24

Argentina

0.47

0.5%

25

Malaysia

0.46

0.5%

SUBTOTAL

27.75

28.7%

TOTAL

96.80

100.0%

Source: JETRO, Trends in Automotive Production andSales in Major Countries, Nov. 2018 (data for 2017).

About CBU, SKD, CKD & Supporting Industry• Complete Build Up (CBU) means import of finished vehicles.
• Semi Knock Down (SKD) and Complete Knock Down (CKD) mean importof component sets and semi-assembled parts (assy’s) to produce finishedvehicles.
• SKD is simpler and uses more ready components than CKD. Official
definitions vary across countries. CKD normally involves welding andpainting while SKD is just putting parts together by screwing and bolting.
• There are other Knock Down types but they are not used for policy
purposes in Ethiopia or Kenya.
• Supporting Industry (susono sangyo) is a Japanese term for domestic
producers of mechanical components (not imported parts) that aresupplied to assemblers operating domestically. It is also called ancillaryindustry (India), industrial verticals (Singapore), subsidiary firms, etc.
• SKD/CKD is the very first step (entry stage) in automotive production.
Most Asian nations have graduated from this stage and now strive tocreate strong supporting industry for technology learning, domestic value
creation and joining global value chains. But this requires sufficientindustry volume, serious HR training and proper policy support.

Timeline of Automotive Production Development
CBU  SKD/CKD  Inviting foreign SI & developing local SI Large volume & low cost  Frontline technology• Many governments encourage domestic value creation and transfer
of manufacturing technology.
• This must be done by climbing the ladder steadily in proper steps.
Each step requires appropriate but different policy support. As theprocess deepens, higher technology and greater sale volume
become critical. Jumping from bottom to top is hardly possible.
• Ethiopia is now moving from CBU to SKD/CKD (the first step)• For countries with annual production of 200,000 new vehicles or
more, development of supporting industries becomes critical forcompetitiveness (cost reduction, quick delivery and response,
increasing production scale).

Timeline Visualized
Just Buying

Import(CBU)

Simpleassembly

Volume &efficiency

Globalleadership

SKD
CKD

Large-scaleefficientproduction
with domestic
components

Mastery of frontline
technology; fierce
global competition;
innovation in e-car,AI, auto drive, etc.

Typical volume
New cars are few;
used cars and parallel
imports dominate

A few to several
thousand vehicles/
year to start with

200,000 to a few
million vehicles/year

Proper incentives &support; curb parallel
imports; quality, safety,
environment standards

Promotion of supporting
industries, technology
transfer, healthy demand
growth, export

Up to 10 million
units globally

Policy action
Little policy needed;private initiative insales, spare parts,
maintenance, etc.

Sri Lanka, Tanzania, Ethiopia Myanmar
Mozambique, etc.
Kenya

Private sector leads;
R&D, trade negotiation,
global standard setting

Toyota, Nissan, VW,
Indonesia
Thailand
Hyundai
Daimler, GM, Ford;
India
Vietnam(China)Tesla, Google?
Uzbekistan S. Africa

Features of Japanese Firms(General, Across Sectors)• Japanese firms generally have the following features which arevisible at home and abroad, in any country and in most sectors.
 Manufacturing orientation (more than commerce, tourism,
construction, finance, professional services, etc.)
 Pursuit of quality and customer satisfaction
 Specialization and division of labor in network production (notvertically integrated production in a huge plant) Pursuit of long-term partnership based on trust
 Slow and small entry; long stay once entry is made
 Support and training for chosen partners for value creation andfuture expansion
 High compliance with local laws and regulations as well as
business contracts• Japanese firms are often accused of being too slow and thus losing
opportunities. But slowness is part of their deep corporate culture.

Japanese Automotive Industry• Japan is globally unique in having ten or more high-standard vehicle
makers, each with long history, competing with each other andglobally, and all surviving.
• Test production of cars began more than a century ago, but Toyota
and Nissan emerged as leading manufacturers in the late 1930s.
The two had very different strategies for learning technology.
Toyota – going it alone, learning by reverse-engineering American cars
Nissan – purchasing a whole plant, technology and support from US• Japanese auto makers behave differently from US, European,
Korean, Chinese or Indian rivals (as Japanese firms in other sectors).
• Japan transferred car production to many other countries, but only
a few (Korea) learned it well enough to become Japan’s competitor.
Others (Thailand, Malaysia, Vietnam, Indonesia, etc.) didn’t achieve
global competitiveness in HR, design, technology, etc. They
continue to receive Japanese support and cooperation after many
decades.

Japanese Automotive Manufacturers
Toyota1998

Corolla 1966

Model AA 1936

Mira 1980

Midget 1957

Skelton Bus 1977

Renault
1999

Nissan1933
Fairlady Z 1969

Honda

1948
Civic 1972

1920

R360 Coupe 1960

GM
1971

2015

Ford

in steps

GM2006

Elf 1959

TX40 Truck 1932

1917

2006
2008

1979

1937

1916

GM

Alto 1979

1920
Matsuda Go 1931

Subaru

GM
1998
2000

Coreda 1955

Isuzu

2016

Pajero1982

Supercub C100 1958

Mazda

March 1982

1970

1917
Mitsubishi Type A 1917

Suzuki

2001

1941

1910
TGE-A 1917

Mitsubishi

Dissolution

1937

Daihatsu 1907
Hino

Control relation

1953
Subaru360 1958

Sambar 1961

1999

2005

GM

GM

F

Issues Raised by Japanese Automotive
Assemblers Concerning Ethiopia• Ethiopia in particular and Africa in general are recognized as a
new frontier and growing market. Ethiopia is a potentiallylarge automotive market within Africa.
• However, a number of entry barriers exist.
1. Severe foreign currency shortage (unique to Ethiopia)
2. Problems with incentive structure
3. Used vehicles and parallel imports
4. Market size (present and future)• Japanese automotive firms currently conduct business mostly
by exporting to Ethiopia. Conditions for local vehicle assembly
are not yet present. But one Japanese firm is planning toassemble vehicles through its local partner.

1. Foreign Currency Shortage• All of the interviewed Japanese assemblers cited this as the biggest
problem and challenge for assembly in Ethiopia.
- Domestic demand for cars and trucks may be potentially large, but it issuppressed as customers cannot obtain F/C.
- Uncertainty and delay in importing machinery and components means
assemblers cannot produce or service customers promptly without delay.

• Government is making effort to increase F/C supply, but Japanesefirms still report little improvement or even more problems.
• Some wonder if F/C shortage will be alleviated when the Grand
Renaissances Dam is completed and starts to export electricity.
• Some hope that government should allocate limited F/C on priority
basis to assemblers who contribute to technology transfer and/or
building a new industrial base in Ethiopia.
• Some argue that export and import substitution should be treatedequally in incentives and policy support as long as they contributeto technology transfer and/or net gain in the trade balance.

2. Tax and Tariff Structure• Ethiopia has very high tax and tariff levies on automobiles. This
reduces domestic demand and suppresses development of auto
market and industry.
Japan’s Tariff Structure, 1968
• Cascading tariff structure—to encourage
domestic production, taxes must be high on
finished products, lower on intermediate
inputs, and lowest (even zero) on components
and raw materials.
• A tariff on any component pleases its domestic
suppliers but makes buyers unhappy. Cascading
tariffs must be set carefully to balance interests of different
producers from upstream to downstream, with clear policy purpose.
• Compared with imported cars (CBU), domestic assembly (SKD/CKD)
incurs additional cost in importation of parts, tools and machinery;factory construction and operation; and HR training. The current tax
gap (5%) is too small to cover this cost. Japanese producers need atleast 20-30% advantage in favor of SKD/CKD over CBU.

3. Used Vehicles & Parallel Imports• Japanese vehicles are very popular on Ethiopian roads and streets, but
most of them are used cars or parallel imports. Producers are not happy
because these discourage new car imports and domestic assembly.
• Limitation on used car imports should be introduced step by step, tobalance the interests of car buyers, importers and producers. Policy
direction must be clearly set, and different interests must be coordinatedaccording to policy priority.
• Safety and environmental regulations must also be set and enforced on all
vehicles to protect citizens.
• Users may prefer cheap cars over new ones, but reduction of car taxes to areasonable level may partially solve this problem. Automotive taxes areeasy to collect, but revenue authority should not overly rely on car levies.
• Through these measures, Thailand, Indonesia and Vietnam succeeded inpromoting domestic car and motorcycle assembly. Their streets are full of
new vehicles assembled at home. Old beaten-up ones are rarely seen.
• Kenya has a policy of limiting used car imports to eight years old or
younger (see below).

4. Volume is Essential• For automotive industry, volume is critical. For attaining efficiency and cost
reduction as well as developing supporting industries, sufficient market
size is required. When global giants decide production sites, customer
volume is the prime concern.
• Biggest markets are China (30 million vehicles/year), EU and US (18 million
vehicles each). Domestic market of 1 million new vehicles or more can beconsidered large (Japan, India, Brazil, Canada, Korea, Iran, Russia, Mexico,
Australia, Indonesia, Turkey).
• Below this level, achieving efficiency and cost reduction becomes difficult,especially when too many producers enter the market.
• Ethiopia’s new car market is less than 8,000/year, compared with 550,000
in South Africa and 300,000 in Vietnam. Ethiopia must begin with simple
assembly, then climb up as demand gradually rises.
• Even if the current market is small, government can at least announce
long-term forecasts for new car production and sales, and introduce
policies that are consistent with (do not frustrate) such forecasts. This will
give long-term confidence to car assemblers and make their investment
decision easier.

Comparing Kenya and Ethiopia• Two Japanese automotive firms and two Japanese motorcycle firms
have assembly operation in Kenya. They use Kenya as a benchmark
for assessing Ethiopia.
• GDF conducted a study of the two countries in 2018.
Automotive Market Size (vehicles/year)

Source: Interviews with industrial sources in Ethiopia and Kenya. See K. Ohno, “Note on the Assembly of Japanese
Automobiles and Construction Equipment in Ethiopia,” a confidential policy memo, revised November 2018.

Kenya: Overview• Kenya has a relatively solid industrial base due to its long history ofindustrialization and business activities of overseas Indians.
• In the past, Kenya’s automotive industry had reached a certain
development stage. However, it declined in the early 1990s due tothe liberalization policy imposed by the IMF and the World Bank.
Permission of CBU import led to a large inflow of used cars which
destroyed the local automotive industry.
• Supporting industries (domestic component suppliers) are slowly
re-emerging after the collapse, though still not many in number.
Government now promotes “CKD” and domestic supplierdevelopment.
• Incentive structure for vehicle assembly is appropriate.
• Kenya faces no foreign currency problem.
• Duty-free export to the member countries of the East African
Community (EAC) is beginning via the customs union agreement.

Kenya: Industrial Policy• Automotive policy is drafted under a strong private initiative. Kenya
Association of Manufacturers (KAM) coordinates and presents
industry voice. Government receives and adjusts private proposals.
• In kaizen, the Ethiopian Kaizen Institute (EKI) is far more advanced
than Kenya’s National Productivity and Competitiveness Center(NPCC) in staff size, organization and top political commitment.
• For SME support, Kenya has a broader policy menu. The Kenya
Institute of Business Training (KIBT), assisted by JICA, covers (i)productivity and quality (5S and kaizen); (ii) management andmarketing; and (iii) finance. This can be a model for Ethiopia’s
handholding assistance to SMEs.
• The Kenya Industrial Research and Development Institute (KIRDI),
established in 1914, provides broad technical support to SMEs justlike Japan’s kosetsushi (prefectural technical support centers). It
offers testing, analysis, certification, consultation, equipment rental
and product development support.

Kenya: Automotive Market• Sales peaked in 2015 but fell subsequently. This was partly due tothe political uncertainty surrounding the 2017 presidential election
and partly due to the lowering of commercial bank lending rateceiling from 17% to 14% and the credit crunch it caused (banks nolonger lend to car buyers because profit margin is too small).
• Used car sales are recovering since 2017 but sales of new vehicles
remain weak.
• Among new sales, Japanese dominate in both passenger cars andcommercial vehicles with Isuzu (34%), Toyota (20%), Hino (3%) as
major brands.
Recent Automobile Sales in Kenya
Of which
Total

Source: Interviews with industrial
sources in Kenya, August 2018.

Used cars

New passenger
cars

New commercial
vehicles2014

84,33567,059

8,187

9,109

2015

96,99677,473

8,540

10,983

2016

70,965

57,130

6,340

7,495

2017

84,78873,921

5,400

5,467

Kenya: Automotive Tax Structure
Description

Customs
duty

Excise tax

VAT

Sur tax

1

Passenger car CBU

25% (i)

20%

16%

--

2

Passenger car CKD

0% (ii)

0%

16%

--

3

Commercial vehicle CBU

25% (iii)

20%

16%

--

4

Commercial vehicle CKD

0%

0%

16%

--

5

Motorcycle CBU25%

Ksh10,000
per unit

16%

--

6

Motorcycle CKD

10%

0%

16%

--

Notes: (i) 0% for ambulance; (ii) positive rates apply for designated 17 part items; (iii) 0% for
agricultural use vehicles.
- In addition to above, there are import declaration fee (2%), railway development levy
(1.5%) and MSS Trade levy ($1.75/ton/20 feet). Automotive firms say these aremanageable and not too cumbersome.
- From July 2018, the excise tax on passenger car (gasoline) of 3000cc or greater andpassenger car (diesel) of 2500cc and greater has been raised from 20% to 30%.
- Pickup trucks (single cabin) are classified as commercial vehicles and pickup trucks(double cabin) are classified as passenger cars.

Kenya: Automotive Tax Structure

74%

16%

Note: multiplicative calculation. The price ratio for buyers over CIF price is (1.74/1.16) = 1.50,
which means CBU is 50% more expensive than CKD for the same vehicle. There is no surtax.
There are some exceptions and additional small charges – see previous table.

Remaining issues:
1. Parallel import of relatively young used cars dominates, discouraging CKD.
2. The commercial bank lending rate ceiling suppresses demand.
3. Excise tax was raised on large passenger cars in 2018 (policy intention?)
4. Need to coordinate policy with EAC member countries, which may be slow
and complicated.

Kenya: Summary of Auto Tax Structure• The automotive tax structure in Kenya is relatively simple and does
not differentiate passenger cars and commercial vehicles.
• CBUs are levied with an import duty of 25% and an excise tax of
20%, while CKD components are exempted from both. This createsa price difference of 50% (taxes are multiplicable so CBU/CKD aftertax ratio is 1.25×1.20 =1.50).
• There are additional charges such as VAT (16%), import declarationfee (2%), railway development levy (1.5%) and MSS Trade levy($1.75/ton/20 feet). These are common to all imports and do notaffect the price difference between CBU and CKD.
• However, there are different treatments for special vehicles anddesignated components of CKD (see table).
• According to Japanese automotive firms, tax & customs procedurein Kenya is not bureaucratic or complex, and all officers basically say
the same thing. This situation is quite different from Ethiopia.

Ethiopia: Automotive Tax Structure
Description

Customs
duty

Excise tax

VAT

Sur tax

1

Cylinder capacity 1000-1300cc

35%

30%

15%

10%

2

Cylinder capacity 1301-1800cc

35%

60%

15%

10%

3

Cylinder capacity 1801-3000cc

35%

100%

15%

10%

4

Cylinder capacity exceeding 3000cc

35%

100%

15%

10%

35%

0

15%

0

35%

0

15%

0

10%

0

15%

0

0

15%

0

7

C-cabin and single cab – carrying capacity
not exceeding 1500 kg
Public transport- seating capacity less than
to 15 passengers
Public transport- seating capacity greaterthan or equal 15 passengers

8

Truck

10%

9

SKD

5%

10

Duty Free vehicles

56Same as above depending on cylinderand seat capacity
Free of tax- Ethiopia is a country with high automotive tax rates.
- On high-end vehicles like Land Cruiser VX, taxes when summed up reach 256% of CIF
value of the vehicle, and on small passenger vehicles they reach 132% of the CIF value.
- For used cars, tax rates are the same as the above table depending on their cylinder
capacity. But a maximum of 30% depreciation (10% for every year since manufacture) is
deducted from the CIF price to calculate to the duty paying value.

Ethiopia: Automotive Tax Structure

No taxNote: multiplicative calculation. There may be other charges. New and used vehicles are levied basically thesame rates except used vehicles can enjoy up to 30% reduction on CIF price (tax base).

Kenya: Vehicle Age Restriction• Kenya bans import of vehicles that are eight years from production
or older. This prevents circulation of defective cars in terms of safety
and environment, and also encourages domestic assembly.
• Kenya is proposing common vehicle age limit to EAC. It wants to
reduce it from 8 to 5 years (and even to 3 years in the future).
Kenya is a leader in this respect within EAC.
• Early agreement may be difficult due to different interests of EAC
member states, resistance from used car dealers and a certain
problem of vehicle inspection cycles on the exporting side.
• Ethiopia has no vehicle age limit (but we hear there is some policy
discussion).

Auto Tax Structure in Selected AsianCountries• Automotive tax structures in seven Asian countries with relatively
developed automotive production (SI development stage or above)are examined.
• Diagrams below show import duties and other taxes levied on
selected CBUs and key components imported from Japan.
Warning• Because each government has different definitions and categories for tax purposes,
exact international comparison is difficult.
• Taxes and tariffs also differ according to country origin. Most Favored Nation(highest) rates, bilateral/regional FTA rates or other rates apply depending on origin.
• Popular vehicle types differ in each country partly due to market and partly due topolicy. There is no representative model for all countries.
• Some nations have complex tax structure even within passenger car category, which
compels us to choose one model for comparison.
• Japan has auto production base in all examined countries. Cars imported from Japanare mostly for model diversity, and usually not the most popular cars in the country.
• ASEAN has zero within-region tariffs including auto CBUs and components. Japanesecar production and sales dominate in ASEAN.
ASEAN = Singapore, Indonesia, Malaysia, Thailand, Philippines, Brunei; Vietnam,
Cambodia, Laos, Myanmar

Countries with Relatively Low Automotive Taxes（Selected CBU models and Components imported from Japan, Nov. 2017）

CBUs

Components

Source: JETRO World Tariff Online Database, accessed November 28, 2017.

Countries with Relatively High Automotive Taxes（Selected CBU models and Components imported from Japan, Nov. 2017）

Note for Thailand:
Although duties and taxes are high on CBU imports
from Japan, Japanese auto makers have strong
presence in Thailand and other ASEAN countries
and can supply cars from there to Thai market.
Source: JETRO World Tariff Online Database, accessed November 28, 2017.

Asian Summary• Commercial vehicles tend to have lower tax rates than passenger cars
(there are exceptions).
• Some countries (Singapore, Malaysia, Indonesia) have no or little
import duties on automobiles. They levy only domestic taxes such as
VAT and excise tax.
• Others (India, China, Thailand) still levy relatively high tariffs and/or
taxes. However, no country in our sample has tax rates as high as
250% like Ethiopia.
• Within ASEAN, all products are traded duty-free. CBUs and autocomponents of Thailand, Indonesia, Vietnam, Philippines andMalaysia are traded freely and compete with each other.
• The cascading tariff structure is maintained. Component tariffs are
generally lower than CBU tariffs.

Selected Country Studies
Below are some automobile producing countries which mostly rely on
the technology of global giants. Each has different strategies for FDI
attraction, technology learning and domestic supplier development.
Their performance is also diverse from reasonable success to failure.
Thailand – FDI attraction + domestic SI promotion; quite successful
Malaysia – Proton, a national brand car company; a failure
Indonesia – large domestic demand-driven auto market, with little
policy support
Vietnam – policy is ineffective, but local private firms produce CVs
carrying local brands; one newcomer attempts a passenger car
South Africa – global giants are attracted, but policy does notencourage domestic value creation; obsessed with job creation
Uzbekistan – permitting just three foreign firms to cover small
domestic and regional markets; good local engineers are available
and policy is reasonableThailand

Population: 69 million
Per capita income: $5,710(2017, WB data)• Thailand has largest automotive production within
ASEAN. It produces about 2 million cars per yearwith significant fluctuations, half of which are exported.
• Thailand received large automotive FDI, especially from Japan, thenpromoted local engineers and component suppliers. Supporting
industry development has been top priority since the late 1980s.
• Japanese government and auto firms supported Thailand with HRD,
productivity, technology as well as infrastructure (Eastern Seaboard
industrial region development, ports, highways, rails, etc.)• Thailand focused on pickup trucks, then added eco-cars (small andefficient cars), both of which were successful. Thailand is happy withforeign car giants and does not plan to create a national car.
• For many decades, the Bureau of Supporting Industries Development(BSID) & Thailand Automotive Institute (TAI) under MOI; and theTechnology Promotion Association (an NPO formed by Thai engineers
who studied in Japan) contributed greatly to upgrading technology
and drafting automotive strategies.

Malaysia

Population: 32 million
Per capita income: $9,650(2017, WB data)• Malaysia is trapped in upper middle income.
Industrial policy is reasonable but indigenous
businesses are not dynamic enough to compete with the world.
• PM Mahathir insisted (still insists) on creating a national car company.
State-owned Proton was established in 1983, enjoyed policy support
and became a hub of heavy industrialization and supporting industry
development. It received technology from Mitsubishi and then Lotus(British sport car). It learned design, engine, marketing and othercapabilities over time.
• Heavily protected Proton once dominated the domestic car market.
However, it lost competitiveness as tariffs came down. It sought
partnership with a global giant but none came to rescue. Finally, in
2018, Geely (China) bought 49.9% of Proton’s share and began tohelp the ailing state company.
• Proton learned technology by going it alone, but global automotive
competition is very tough and halfway learning did not produce
success.

Indonesia

Population: 264 million
Per capita income: $3,540(2017, WB data)• Indonesia has a large population and its emerging
middle class has a great appetite for cars, processedfood and other consumer items. FDI is naturally
attracted to this large market.
• Manufacturing is domestically oriented with little
export. Licensing procedure is cumbersome, andthere is virtually no incentive for investors.
• Indonesia received huge amounts of ODA and FDI from Japan.
Nevertheless, MOI’s policy capacity remains low. SME policy islimited and ineffective. HR training is conducted by private firms andforeign (Japanese) NPOs.
• Excessive decentralization implemented in 2001-2003 hampers policy
implementation of TVET, SME promotion, etc. at national level.
• Delays in infrastructure construction causes huge congestion at
Jakarta’s roads and ports. There is no modern urban transit system.

Vietnam

Population: 96 million
Per capita income: $2,342(2017, WB data)
PM Nguyen Xuan Phuc andIndustry Minister Tran Tuan Anh• Economic liberalization since 1986 and global integration since 1993
brought high growth (6-9% range) for a few decades, propelling thecountry from the poorest to lower middle-income status by 2008.
• Toyota, Honda, Nissan & GM have plants. Mazda & Hyundai/Kia
assemble cars via a local partner (Thaco). Locals (Thaco, Samco, etc.)
can produce buses and trucks competitively. Vinfast, a newcomer to
auto industry, is trying to produce passenger cars with American &European support (results remain uncertain).
• In the last quarter century, productivity and skills have not improved
greatly. Car production grew slowly, now reaching 300,000/year.
• Policy is ineffective and frustrates FDI assemblers. Government does
not listen to Japanese auto firms, officials or researchers.
• PM Phuc wants to develop supporting industries. SI policy has beenin place for a long time but remains awkward and ineffective, andmust be revised (Japan is willing to help if Vietnam is also willing).

South Africa

Population: 57 million
Per capita income: $5,430(2017, WB data)• South Africa successfully created an auto cluster of seven car makers
by attracting FDI with generous subsidies. But policy encourages
simple assembly over domestic value creation or technology transfer.
Car production has stagnated at 600,000 vehicles per year.
• Some technocrats at the Department of Trade and Industry (DTI),
Japanese officials and Japanese auto makers wanted a policy shift.
But some foreign car makers opposed it. SA politicians are highly
sensitive to job loss risk or lobbying from FDI.
• GDF (Ohno) made the following policy recommendations in 2016.
- Prepare data analysis on global benchmarking (Thailand), futurescenarios, impact assessment on jobs, trade balance, etc.
- Secure top leader’s support [will Pres. Ramaphosa change the game?]- Japanese auto makers and officials should work hard to assist SA’s auto
policy formulation (Africa is far and Japanese firms are not many).

Uzbekistan

Population: 32 million
Per capita income: $2,000(2017, WB data)• Uzbekistan was part of USSR until 1991. It is doubly landlocked. But it
had good automotive university and engineers. After independence,
it adopted state control and gradualism to minimize shocks.
• Daewoo (Korea) initially assembled cars. After Daewoo bankrupted,
GM (US) took over. It produces a few basic sedans for domestic,
regional and Russian markets. GM built a huge state-of-art engine
plant in Tashkent where locals manage without American bosses.
• Isuzu & MAN (Germany) assemble commercial vehicles. Isuzu plant inSamarkand is kaizen-driven and well-organized.
• Despite many difficulties, Uzbekistan was successful thanks to:
1. Existence of excellent auto engineers and managers
2. Allowing only GM, Isuzu & MAN to enter with limited models toachieve volume and cost reduction even in a small market
3. Appropriate policy prioritization and incentives• Capacity is >200,000 but Russian recession damps sales at present.

Suggested Policy Direction for Ethiopia
1. Long-term vision should guide automotive policy and incentives toachieve pre-set goals. Government should consciously address andbalance multiple concerns regarding industrial promotion, traffic
safety, road congestion, environment and fiscal revenue.
2. Current Ethiopian automotive taxes and tariffs are very high andcomplex. Lower and simplify them. For fiscal revenue, do not overrely on auto taxes but diversify the tax base and strengthen tax
collection.
3. Preserve cascading tariff structure. Coordinate interests ofassemblers, part suppliers and distributors under clear policy vision.
4. Vehicle age limit should be introduced in proper steps.
5. An automotive strategy with market forecast scenarios should be
drafted. Ethiopian auto demand will surely increase, especially iftaxes are lowered. Policy should support this increase and at thesame time cope with expected problems (congestion, air pollution,
accidents, IPR violation, substandard vehicles, recycling, etc.)

Policy (cont.)
6. Safety and environmental standards should be set and upgraded inrealistic steps. Appropriate HR, equipment, laws and institutions
should be developed for vehicle certification and inspection.
7. A realistic urban development and transport master plan should be
drafted for Addis Ababa.
8. To formulate these policies, voices of stakeholders, both domestic
and foreign, should be heard. Government should also talk directly tointerested Japanese vehicle producers.
9. Announce all automotive policies and incentives in official gazette orother official document for clarity and transparency.