Zimbabwe has taken a significant step towards revitalising its automotive sector by announcing the suspension of customs duty on semi-knocked down (SKD) vehicle kits. The move, detailed in Statutory Instrument 194 of 2024, aims to stimulate local vehicle assembly and manufacturing, potentially leading to reduced vehicle prices and increased employment opportunities in the country.
The decision, spearheaded by Finance minister Professor Mthuli Ncube, is set to have far-reaching implications for the Zimbabwean automotive landscape. By removing financial barriers for approved assemblers, the government hopes to kick-start a renaissance in domestic vehicle production, reducing reliance on imports and fostering economic growth.
I will explore the intricacies of this policy shift, exploring its potential impact on various stakeholders, from manufacturers to consumers and examining how it fits into the country’s broader economic strategy. I will analyse the terms of the duty suspension, its expected effects on the market and the challenges and opportunities that lie ahead for the country’s automotive industry.
Scope and duration
The duty suspension applies to SKD kits for single and double-cab motor vehicles, as well as buses. It sets the customs duty rate to zero percent for these items when imported or taken out of bond by approved assemblers. This measure is not indefinite; rather, it has a defined timeframe of five years, commencing on January 1, 2025, and concluding on December 31, 2029.
This five-year window provides a substantial period for local assemblers to establish or expand their operations, potentially transforming the landscape of Zimbabwe’s automotive manufacturing sector. The fixed duration also allows the government to assess the policy’s effectiveness and make necessary adjustments at the end of the term.
Eligibility criteria
Not all importers can benefit from this duty suspension. The policy specifically targets “approved assemblers”, a designation that likely involves a vetting process to ensure that beneficiaries have the capacity and intention to contribute meaningfully to local vehicle assembly.
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This targeted approach aims to prevent abuse of the system and ensures that the benefits of duty suspension flow directly to entities actively engaged in domestic vehicle production. It also creates an incentive for companies to invest in assembly facilities and workforce training to qualify for this advantageous customs treatment.
Cost reduction for local assemblers
“One of the most immediate and significant impacts of the duty suspension will be the reduction in input costs for local assemblers. By eliminating customs duty on SKD kits, the government effectively lowers the financial barrier to entry for companies looking to engage in vehicle assembly within Zimbabwe,” said Industry and Commerce ministry permanent secretary Dr Thomas Utete Wushe.
This cost reduction could lead to several positive outcomes:
Increased profitability for existing assemblers;
Encouragement of new entrants into the market;
Potential for expansion of Willowvale Motors Industries;
Greater competitiveness against fully imported vehicles; and
It might see the revival of Quest Motors who assembled out of Mutare
The lowered costs may also allow assemblers to invest more in other areas of their business, such as technology upgrades, workforce training, or research and development.
Stimulating domestic production
The duty suspension is clearly aimed at boosting domestic vehicle production. By making it more economically viable to assemble vehicles locally, the policy could lead to an increase in the number of vehicles manufactured within Zimbabwe’s borders.
This increase in domestic production could have several knock-on effects:
Creation of jobs in the assembly sector and related industries;
Development of a more robust automotive supply chain within Zimbabwe;
Reduction in the country's reliance on imported vehicles; and
Potential for export of locally assembled vehicles to regional markets.
The policy aligns with the government’s broader industrial strategy, which seeks to enhance the country’s manufacturing capabilities across various sectors.
Challenges for local assemblers
While the duty suspension presents significant opportunities, local assemblers may face challenges in capitalising on these benefits:
Initial investment: Assemblers may need to invest in new equipment or facilities to handle increased production.
Skill development: There may be a need for workforce training to meet the demands of expanded assembly operations.
Supply chain management: Coordinating the import of SKD kits and managing inventory effectively will be crucial.
Quality control: Maintaining high standards of quality in assembled vehicles will be essential for market success.
Labour cost: Zimbabwe uses the US dollar, which is an expensive currency when it comes to wages.
Addressing these challenges will be critical for the policy to achieve its intended impact on the local assembly industry.
Vehicle pricing and affordability
The suspension of duty on SKD kits is expected to have a significant impact on vehicle pricing in Zimbabwe, potentially making locally assembled vehicles more affordable for consumers.
Potential for price reductions
With the removal of customs duty on SKD kits, local assemblers will see a reduction in their production costs.
In a competitive market, this cost saving is likely to be passed on, at least partially, to consumers in the form of lower vehicle prices.
The extent of price reductions will depend on several factors:
The proportion of total vehicle cost represented by the now duty-free SKD kits;
The level of competition in the local market;
The pricing strategies adopted by assemblers and dealerships; and
Any additional costs incurred in expanding local assembly operations.
While it’s difficult to predict exact figures, even modest price reductions could make a significant difference in vehicle affordability for many Zimbabweans.
Direct employment in the sector
The expansion of local vehicle assembly operations is expected to create new jobs directly within the automotive sector. These jobs may include assembly line workers, quality control specialists; logistics and supply chain managers, automotive engineers and technicians and administrative and management positions.
The number of jobs created will depend on the scale of expansion in the local assembly industry and the level of automation in assembly processes.
However, even modest growth in this sector could provide significant employment opportunities in our country facing high unemployment rates.
Indirect job creation
Beyond direct employment in vehicle assembly, the policy is likely to stimulate job creation in related industries and support services. This could include:
Component manufacturing: As local assembly increases, there may be opportunities for domestic production of certain vehicle components.
Logistics and transportation: Increased movement of SKD kits and finished vehicles will require additional logistics support.
Sales and marketing: Growth in the local vehicle market may lead to expanded dealership networks and marketing efforts.
After-sales services: More locally assembled vehicles on the road will increase demand for maintenance and repair services.
These indirect employment effects could potentially outweigh the direct job creation in assembly operations, contributing to broader economic growth.
Skills development
The growth of the local assembly industry presents an opportunity for skills development and technology transfer. As international automotive companies increase their involvement in the local market, they may bring with them: advanced manufacturing techniques; quality control processes; management practices; and automotive technologies.
This transfer of knowledge and skills could have long-term benefits for the country’s workforce, enhancing overall industrial capabilities. — andrew@muzamhindo.com
Economic multiplier effects
The expansion of the automotive sector could have multiplier effects throughout the economy. Increased employment and potentially higher wages in the sector could lead to: greater consumer spending power; increased demand for goods and services in other sectors; and potential for new business opportunities in related industries.
These multiplier effects could contribute to overall economic growth, extending the impact of the duty suspension policy beyond the automotive sector itself.
Challenges and considerations
While the suspension of duty on SKD kits presents significant opportunities for Zimbabwe’s automotive sector, it also comes with several challenges and considerations that need to be addressed for the policy to achieve its intended outcomes.
Infrastructure and logistics
One of the primary challenges in expanding local vehicle assembly is ensuring that the necessary infrastructure and logistics systems are in place. This includes:
Transportation networks: Efficient road and rail networks are crucial for the movement of SKD kits from ports to assembly plants, and for distributing finished vehicles.
Power supply: Reliable electricity is essential for assembly operations. Zimbabwe's history of power shortages could pose challenges for consistent production.
Storage facilities: Adequate warehousing for SKD kits and finished vehicles will be necessary to manage inventory effectively.
Customs processing: Streamlined customs procedures will be crucial to avoid delays in the import of SKD kits.
Addressing these infrastructure and logistics challenges will require coordination between the government and private sector, and may necessitate additional investment in key areas.
Quality control and standards
Maintaining high quality standards in locally assembled vehicles will be crucial for the success of the policy. Challenges in this area include:
Ensuring consistent quality across all assembled vehicles;
Meeting international safety and emissions standards;
Building consumer confidence in locally assembled vehicles; and
Implementing effective quality control processes in assembly plants
Failure to address these quality concerns could undermine consumer trust and hinder the growth of the local assembly industry.
Skills gap and workforce development
The expansion of vehicle assembly operations may reveal a skills gap in the local workforce. Addressing this could involve:
Developing training programs in partnership with educational institutions;
Attracting skilled workers from other sectors or countries;
Investing in on-the-job training and skills development; and
Encouraging knowledge transfer from international partners
Bridging this skills gap will be essential for the long-term success and sustainability of the local assembly industry.
Market demand and consumer preferences
The success of the duty suspension policy ultimately depends on consumer demand for locally assembled vehicles. Challenges in this area include:
Overcoming any negative perceptions about locally assembled vehicles;
Matching product offerings to consumer preferences and needs;
Competing with the perceived prestige of certain imported brands; and
Educating consumers about the benefits of supporting local production.
Addressing these market-related challenges will require effective marketing strategies and possibly government-led campaigns to promote locally assembled vehicles.
Comparison with regional automotive policies
Zimbabwe’s approach to stimulating its automotive sector can be compared with policies in other African countries:
South Africa: Has a well-established automotive manufacturing sector supported by various government incentives.
Kenya: Implemented a similar SKD kit duty exemption to boost local assembly.
Nigeria: Has pursued an automotive policy aimed at discouraging vehicle imports and promoting local production.
Ghana: Recently introduced policies to attract automotive manufacturers and assemblers.
Understanding these regional approaches can help Zimbabwe refine its own policy and potentially identify opportunities for collaboration or competition.
My decision
The suspension of duty on SKD vehicle kits represents a significant step in Zimbabwe’s efforts to revitalise its automotive sector.
By reducing costs for local assemblers, the policy aims to stimulate domestic vehicle production, create jobs and potentially make vehicles more affordable for Zimbabwean consumers.
This is a game of number were economies of scale are important to make it profitable for any investor.
However, the success of this initiative will depend on various factors, including the ability to address infrastructure challenges, maintain quality standards, develop a skilled workforce and navigate regional and international trade dynamics. The policy also presents opportunities to promote sustainable manufacturing practices and adapt to emerging automotive technologies.
As Zimbabwe moves forward with this policy, careful monitoring and potential adjustments will be necessary to ensure that the automotive sector’s growth aligns with broader economic development goals and changing market conditions.
If successfully implemented, this policy could play a crucial role in positioning Zimbabwe as a significant player in Africa's automotive manufacturing landscape.
- The coming years will be critical in determining whether this duty suspension can truly catalyse a renaissance in Zimbabwe's automotive industry, bringing with it the promised benefits of economic growth, job creation, and industrial development. — andrew@muzamhindo.com
