Uganda Autos Report Q1 2013

Uganda's new vehicle market is a tiny fraction of the total autos sector, with second-hand vehicles still theonly affordable option for many consumers. Even then, sales of passenger cars are around two-thirds thevolume of commercial vehicles, with buses comprising the lion's share as public transport is the mostwidespread means of getting around.

According to the Total Industry Volume report, as reported by the Daily Monitor in April 2012, car salesin Uganda have been hit by slowed growth characterised by high inflation, currency depreciation and therising cost of doing business in the country.

Car sales in the first quarter of 2012 stood at 425, a drop of 17% compared with the same period last year,when 513 were shifted.

The chairman of Uganda Motor Vehicles Importers Association, Nelson Tugume, told the Daily Monitorthe slump was down to a struggling economy. He said: 'Cars are not a life necessity so consumers canpostpone buying them to cater for basic needs.

'This is an economic problem. As long as the economy continues to struggle then car sales will be low.'This defies signs last year that new vehicle sales were growing, albeit at a much slower rate. According tothe Uganda Motor Industry Association, sales of new vehicles for the first eight months of 2011 were up3% year-on-year (y-o-y) to 1,785 units, compared with the 1,618 units sold the year before. As in othercountries in the region, the growth was spurred by a healthy construction sector, which generated demandfor trucks and heavy vehicles. The data shows that out of the total vehicles sold, 984 were pick-up trucks,while passenger car sales comprised 377 estates and 227 sedans.

There are positive signs for the industry, however. The Uganda National Roads Authority has announcedthat construction of the US$350mn toll road connecting Kampala with Entebbe Airport will start in July2012, reported by Road Traffic Technology. Construction work on the 50km road, which is due to becompleted by July 2015, will be financed by China's Export-Import Bank. The road will facilitatetransportation between the capital city and the country's only international airport, as well as easing trafficcongestion on the existing road between the two locations.

We are encouraged by the demand side in the country being significantly bolstered by large populationsin excess of 30mn and positive medium-term macro growth outlooks, suggesting room for rapid growthin the social housing and social infrastructure spheres.

The government has also committed to large spending plans aimed at improving inter-regional anddomestic infrastructure.

We believe that Uganda will experience strong growth bolstered by robust investment, privateconsumption and government expenditure. Exports will play a greater role in the years ahead as oil makesa major impact.

We estimate total vehicle sales of 42,950 this year, a rise of 10.94% year-on-year (y-o-y). We reckonsales annual growth will average 10.5% in 2012-2017.

On the downside, monetary policy will remain tight (but gradually loosen throughout the rest of the year),keeping the cost of borrowing relatively high as authorities keep an eye on inflation.A trade dispute with Kenya - the Kenya Revenue Authority has directed that transit goods execute a cashbond equivalent to the tax value of the consignments imposed on them if they were to be sold in Kenya -also threatens auto industry growth.