Sunday, February 28, 2021

‘Fong Kong’ Madness and Africa’s Degradation

Batswana love their cars and even if their pay packet looks like to an Audi sign ( ie. four zeros) they will be proudly driving their cars to work on the ever more congested and expensive roads having last had enough money to service them during the late Jurassic period. There is perhaps no other country where the private sector so completely dominates personal transport. In most cities the government, whether national or local provides some form of public transport for people commuting to work but not in Gaborone.

The last form of public transport ended with the Botswana Railways commuters trains that took passengers from Gaborone’s southern peri-urban areas of Lobatse and Ramotswe to Gaborone but this ended many years ago as they could not make a profit. The options in Botswana is either shared private transport through the use of ‘combis’ or increasingly privately owned second hand cars ( commonly referred to as Fong Kongs in Southern Africa and Tokunbo cars in Nigeria) imported from Japan, US and the UK which provide people with extremely cheap cars sometimes as low as USD 1,000. That of course is the price of an old and small car in Japan and then you have to add to that the cost of transport to Gaborone along with the very high import duties ( up to 28%) , which protect the South African producers and then on top of that there is a 12% to 16% value added tax, depending on which SACU country. The fact that the taxes are so high provides a considerable incentive for importers to lie or politely to ‘undervalue’ . Getting a false receipt, is easy enough, one just has to ask.

In theory the customs service of the SACU countries could use an international reference such as the ‘Blue Book’ which gives you a list of prices and values for cars. But customs officials know well that cars being imported into Botswana and other SADC markets in ever larger numbers either directly from Asia or the UK through Namibia are purposely undervalued and they often look the other way. It is very difficult to know exactly how many second cars are imported into Botswana and what their value because the statistics available do not readily differentiate the imports of new and used vehicles. Moreover you cannot even accurately tell from export figures from source countries because so many of the vehicles entering Botswana come first into the bond in Durban and are purchased by individuals or companies from there.

The Durban car bond is a very strange place where you a foreign passport to enter because South Africa has long ago banned the import of Fong Kongs knowing the damage it would do to its own highly protected and subsidized automobile sector. But based on Japanese statistics the number of vehicles being exported to Botswana are growing exponentially to over 8, 000 per annum in 2012 from barely 3,000 five years earlier. Of course much of the Japanese data does not include vehicles under 200,000 yen ie approximately USD 2,000 and so much of the data misses really what Africa is buying . Japan in 2014 exported over 1,000,000 used vehicles and approximately 15-20% went to Africa. If one is young enough to believe the trade statistics then unit export value of the cars coming into the bond at Durban and into Botswana are becoming cheaper each year. This could be because the exporters and importers are evading import duties and VAT or it could be because the market for these vehicles is just getting more targeted towards low income groups.

Equally likely the export values might be declining as the global second hand market becomes saturated with ever more developed countries either subsidizing or pushing the export of old cars. ‘Shaken’ but not shaken For Japan, the US and EU the second hand market while not significant is important as a way of disposing of older vehicles. In all the developed regions, the US EU and Japan, governments since the 2008 financial crisis have provided economic incentives for their citizens to dispose of used cars so that the could stimulate domestic production. The US under President Obama had the ‘cash for clunkers’ program but this is only the tip of the iceberg in terms of incentives that governments have given to get rid of used cars and to stimulate consumption of new cars.

Furthermore, all developed countries are seeking to develop electric cars and this is providing massive incentives to their domestic producers. So what do you the junk- why to export to Africa. The Japanese have the most seriously considered and sophisticated system of incentives to get their citizens out of their 3-6 year old motor vehicles and buying new Toyotas and Nissans. They have a system of certification called a ‘shaken’ in Japanese. After three years every Japanese car owner has to pass a road worthiness certificate. In some cases the test costs up to USD1,000 and that is without the repairs that are needed to a vehicle. This creates a considerable incentive for the Japanese, who remain fond of everything new, to get rid of their aging cars.

Most economists consider this to be a non-tariff measure specifically designed to promote the domestic car industry. But the Japanese have a further problem. The biggest second hand markets for cars are normally from local buyers but the Japanese have a major cultural aversion to buying anything second hand, a problem not shared throughout much of the developing and emerging world so the Japanese government has organised a first rate export certification system which has allowed the development of massive multi-billion dollar used vehicle trade. Rather than crushing and recycling their clunkers they export them at much higher prices to the developing world. The biggest markets for Japanese second hand cars are not Africa but Russia Chile, UAE which import massive quantities of Japanese used cars. Ironically, the fourth biggest market for Japanese used cars was South Africa ie. Durban where they are distributed to everyone else in Africa excluding South Africans who are prohibited from importing most second hand cars.

This ban is to protect the South African automobile manufacturers but ironically those who pay for this protection are the citizens of the very countries in SACU that are importing ever more Fong Kongs. The automobile industry in South Africa gets tariff rebates from the SACU customs pool, most of which would otherwise go to the four other states small SACU states- Botswana Lesotho, Namibia and Swaziland . The main countries subsidizing the South African industry are Botswana and Namibia which each lose approximately ZAR 5 billion annually from the SACU customs revenue. Make my day, tax my car! The growth of these second hand cars are an economic disaster for much of southern Africa. There is not a Fong Kong owner , including the author, who does not love their vehicle and sees it as away of tweaking the noses of the South Africans who want only to sell Africa expensive new cars. But the effect of the Fong Kongs is that because roads are free at point of use and buying cars are cheap, the massive growth of second hand cars is distorting the economic infrastructure throughout southern Africa.

Small cities like Gaborone are planning to build freeways and already have 4 lane roads everywhere to accommodate the flood of Fong Kongs rather than using the scarce funding for rural roads and infrastructure. Africa is essentially accepting to eventually scrap US, EU and Japanese cars and those importing should pay for the environmental costs. What needs to be done is to impose a substantial scrappage tax on all imported cars which rises from say 1% for new cars to 40% for oldest highest engine capacity Fong Kongs and based not on what importers say they are worth but on book values because tax evasion by under valuation is so pervasive in the auto market. Then the obvious use of such a levy is to subsidize the VAT and import duties ‘combies’ in the short term and also reintroduction of low cost commuter railway service in cities Gaborone from the southern periphery at Lobatse to the north in Mochudi at a very low or nominal fee.

This sort of cross subsidization would have the dramatic effect on the galloping land prices in central Gaborone and other SADC capitals and would change the nature of the city entirely. Gaborone and its increasing congestion is proof, if more were needed, that the free market cannot solve all the nation’s problems and that a real system of public transport is needed. Africa’s Degradation But there is much bigger policy issue in the Fong Kong trade. The import of the second hand vehicles, like the similar import of second hand clothing, is emblematic of Africa’s place on the global value chains and the current model of globalization. West Africans once produced some of the world’s finest cloth and now Europe dumps its discarded clothes in Africa while Japan sells us their Fong Kongs rather than recycle them.

This, the Europeans and Japanese do all in the name of energy efficiency and so in turn they export their energy inefficiency to Africa and the developing world. In the long run, these Fong Kongs produce even more global pollution because Africans will keep them much longer than Europeans and Japanese. Africans will prefer clunkers rather than use either non-existent or poor or unsafe public transport. For the free market proponents of the current globalized value chains, Africa will happily continue to produce nothing more than holes in the ground so as to efficiently sell ever more minerals to Asia and the EU to pay for yet more Fong Kongs which will, in turn, be made from African minerals. And this is Africa’s place in the global value chain?

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