International Comparison of

Automotive Assembly Policies

For Inviting Global Players to Ethiopia and Supporting their Expansion

Nairobi, Kenya Near Addis Ababa, Ethiopia

Johannesburg, South Africa 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 in
Africa). However, their producers are slow to come to Ethiopia for
assembly. 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 (producers
of 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 this
growth, but its market slowed down recently.
• Global firms with full technical capability to lead and innovate are
less 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, car
sharing, 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

Production Sales
Other Other
China China
Korea
Korea
ASEAN ASEAN
97.3 million 96.8 million
vehicles India vehicles
India
Japan

Japan USA
USA
EU
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
Headquartered Sales
Company Share
in (million)
1 VW Germany 10.7 11.1%
2 Renault-Nissan-Mitsubishi France 10.6 11.0%
3 Toyota Japan 10.4 10.7%
4 GM USA 9.6 9.9%
5 Hyundai Korea 7.3 7.5%
6 Ford USA 6.6 6.8%
7 Fiat-Chrysler (FCA) France 4.8 5.0%
8 Honda Japan 3.7 3.8%
9 PSA (Peugeot, Citroën, etc.) France 3.6 3.7%
10 Daimler Germany 3.3 3.4%
11 Suzuki Japan 3.2 3.3%
12 Changan China 2.9 3.0%
13 BMW Germany 2.5 2.6%
14 Mazda Japan 1.6 1.7%
15 Tata India 1.3 1.3%
16 Subaru Japan 1.0 1.0%
SUBTOTAL 83.1 85.8%
Other 13.7 14.2%
TOTAL 96.8 100.0%

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

 Producing Nations without Frontline Technology
Global Production
UK, Italy ranking
Country
(million units)
Share
They are (were) leaders in high-end 7 Mexico 4.07 4.2%
models but are without volume or 8 Spain 2.85 2.9%
competitive edge for popular models. 9 Brazil 2.70 2.8%
11 Canada 2.20 2.3%
Thailand, Mexico, Canada, Indonesia, 12 Thailand 1.99 2.1%
Poland, Hungary, South Africa, Turkey, 13 UK 1.75 1.8%
Czech Republic, etc. 14 Turkey 1.66 1.7%
These countries offer workers and plant 15 Russia 1.55 1.6%

sites for global giants which are 16 Iran 1.52 1.6%

attracted to low wage, incentives, tariff 17 Czech Republic 1.42 1.5%

18 Indonesia 1.22 1.3%
or FTA privilege, etc.
19 Italy 1.14 1.2%
20 Slovakia 1.00 1.0%
Malaysia
21 Poland 0.69 0.7%
Tried to create a national car (Proton) 22 South Africa 0.59 0.6%
with heavy support and protection, but 23 Hungary 0.47 0.5%
as tariffs come down, Proton suffers 24 Argentina 0.47 0.5%
from the lack of competitiveness. Now 25 Malaysia 0.46 0.5%
receiving Chinese assistance. SUBTOTAL 27.75 28.7%

Source: JETRO, Trends in Automotive Production and TOTAL 96.80 100.0%

Sales 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 import
of component sets and semi-assembled parts (assy’s) to produce finished
vehicles.
• SKD is simpler and uses more ready components than CKD. Official
definitions vary across countries. CKD normally involves welding and
painting 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 are
supplied to assemblers operating domestically. It is also called ancillary
industry (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 to
create strong supporting industry for technology learning, domestic value
creation and joining global value chains. But this requires sufficient
industry 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 the
process 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 for
competitiveness (cost reduction, quick delivery and response,
increasing production scale).
 Timeline Visualized

Simple Volume & Global

Just Buying
assembly efficiency leadership

Large-scale Mastery of frontline

efficient technology; fierce
Import SKD
production global competition;
(CBU) CKD
with domestic innovation in e-car,
components AI, auto drive, etc.
Typical volume
New cars are few; A few to several Up to 10 million
200,000 to a few
used cars and parallel thousand vehicles/ units globally
million vehicles/year
imports dominate year to start with
Policy action
Little policy needed; Proper incentives & Promotion of supporting Private sector leads;
private initiative in support; curb parallel industries, technology R&D, trade negotiation,
sales, spare parts, imports; quality, safety, transfer, healthy demand global standard setting
maintenance, etc. environment standards growth, export
Indonesia Toyota, Nissan, VW,
Sri Lanka, Tanzania, Ethiopia Myanmar Thailand Hyundai
Daimler, GM, Ford;
Vietnam India
Mozambique, etc. Kenya (China) Tesla, Google?
Uzbekistan S. Africa
Features of Japanese Firms
(General, Across Sectors)

• Japanese firms generally have the following features which are

visible 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 (not
vertically 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 and
future 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 and
globally, 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
Control relation
Dissolution

Toyota 1937
Corolla 1966 1998
Model AA 1936
Daihatsu 1907
Mira 1980 2001
Midget 1957
Hino 1910 1941
Skelton Bus 1977
TGE-A 1917
Renault
1999
Nissan 1933
March 1982
Fairlady Z 1969 2016
Mitsubishi 1917 1970
Mitsubishi Type A 1917 Pajero1982

Honda 1948
Supercub C100 1958 Civic 1972
GM GM
1998 2006
2000 2008
Suzuki 1920
Coreda 1955 Alto 1979

Mazda 1920
R360 Coupe 1960 1979 2015
Matsuda Go 1931
GM Ford GM in steps
F
1971 2006
Isuzu 1916 1937
TX40 Truck 1932 Elf 1959

Subaru 1917 1953

1999 2005
Subaru360 1958 Sambar 1961
GM GM
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 potentially
large 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 to
assemble 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 is
suppressed 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 Japanese
firms 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 treated
equally in incentives and policy support as long as they contribute
to 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 at
least 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, to
balance the interests of car buyers, importers and producers. Policy
direction must be clearly set, and different interests must be coordinated
according 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 a
reasonable level may partially solve this problem. Automotive taxes are
easy to collect, but revenue authority should not overly rely on car levies.
• Through these measures, Thailand, Indonesia and Vietnam succeeded in
promoting 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 be
considered 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 of
industrialization 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 to
the 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 supplier
development.
• 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 and
marketing; 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 just
like 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 to
the political uncertainty surrounding the 2017 presidential election
and partly due to the lowering of commercial bank lending rate
ceiling from 17% to 14% and the credit crunch it caused (banks no
longer 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 and
commercial vehicles with Isuzu (34%), Toyota (20%), Hino (3%) as
major brands.
Recent Automobile Sales in Kenya
Of which
Total New passenger New commercial
Used cars
cars vehicles
2014 84,335 67,059 8,187 9,109
2015 96,996 77,473 8,540 10,983
2016 70,965 57,130 6,340 7,495
Source: Interviews with industrial 2017 84,788 73,921 5,400 5,467
sources in Kenya, August 2018.
 Kenya: Automotive Tax Structure
Description Customs Excise tax VAT Sur tax
duty

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 CBU 25% Ksh10,000 16% --

per unit

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 are
manageable and not too cumbersome.
- From July 2018, the excise tax on passenger car (gasoline) of 3000cc or greater and
passenger 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 creates
a price difference of 50% (taxes are multiplicable so CBU/CKD after-
tax ratio is 1.25×1.20 =1.50).
• There are additional charges such as VAT (16%), import declaration
fee (2%), railway development levy (1.5%) and MSS Trade levy
($1.75/ton/20 feet). These are common to all imports and do not
affect the price difference between CBU and CKD.
• However, there are different treatments for special vehicles and
designated components of CKD (see table).
• According to Japanese automotive firms, tax & customs procedure
in 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 Excise tax VAT Sur tax
duty
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%

5 C-cabin and single cab – carrying capacity 35% 0 15% 0

not exceeding 1500 kg
6 Public transport- seating capacity less than 35% 0 15% 0
to 15 passengers
7 Public transport- seating capacity greater 10% 0 15% 0
than or equal 15 passengers
8 Truck 10% 0 15% 0

9 SKD 5% Same as above depending on cylinder

and seat capacity
10 Duty Free vehicles 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 tax

Note: multiplicative calculation. There may be other charges. New and used vehicles are levied basically the
same 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 Asian
Countries
• 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 to
policy. 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 Japan
are 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. Japanese
car 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 auto
components of Thailand, Indonesia, Vietnam, Philippines and
Malaysia 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 not
encourage 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
 Population: 69 million
Thailand Per capita income: $5,710
(2017, WB data)

• Thailand has largest automotive production within

ASEAN. It produces about 2 million cars per year
with significant fluctuations, half of which are exported.
• Thailand received large automotive FDI, especially from Japan, then
promoted 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 and
efficient cars), both of which were successful. Thailand is happy with
foreign 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 the
Technology Promotion Association (an NPO formed by Thai engineers
who studied in Japan) contributed greatly to upgrading technology
and drafting automotive strategies.
 Population: 32 million
Malaysia 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 other
capabilities 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 to
help 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.
 Population: 264 million
Indonesia Per capita income: $3,540
(2017, WB data)

• Indonesia has a large population and its emerging

middle class has a great appetite for cars, processed
food and other consumer items. FDI is naturally
attracted to this large market.
• Manufacturing is domestically oriented with little
export. Licensing procedure is cumbersome, and
there 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 is
limited and ineffective. HR training is conducted by private firms and
foreign (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.
 Population: 96 million
Vietnam Per capita income: $2,342
(2017, WB data)

PM Nguyen Xuan Phuc and

Industry Minister Tran Tuan Anh

• Economic liberalization since 1986 and global integration since 1993

brought high growth (6-9% range) for a few decades, propelling the
country 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 been
in place for a long time but remains awkward and ineffective, and
must be revised (Japan is willing to help if Vietnam is also willing).
 Population: 57 million
South Africa 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), future
scenarios, 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).
 Population: 32 million
Per capita income: $2,000
Uzbekistan (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 in
Samarkand 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 to
achieve 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 to
achieve pre-set goals. Government should consciously address and
balance multiple concerns regarding industrial promotion, traffic
safety, road congestion, environment and fiscal revenue.
2. Current Ethiopian automotive taxes and tariffs are very high and
complex. Lower and simplify them. For fiscal revenue, do not over-
rely on auto taxes but diversify the tax base and strengthen tax
collection.
3. Preserve cascading tariff structure. Coordinate interests of
assemblers, 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 if
taxes are lowered. Policy should support this increase and at the
same 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 in
realistic 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 to
interested Japanese vehicle producers.
9. Announce all automotive policies and incentives in official gazette or
other official document for clarity and transparency.