Zimbabwe’s economic and financial situation cant afford the ban on used car imports which is due to become effective at the end of June 2011.Whilst theoretically the idea seem noble and with good intentions the country is suffering from severe liquidity crisis and very low salaries with some workers reportedly earning as little as $ 150 per month. This makes it impossible for such an employee to ever save enough money to ever buy a car with new cars priced from around $ 20,000.
In Africa and Zimbabwe generally a car is a very important asset which every family should be in position to acquire. This is mostly to do with the unreliable public transport systems .Particularly the transport system to visit the rural areas in many cases requires cars and the new regulations just about makes it very difficult for many families to be able to buy a car.
The main theory advanced is that the imports are hurting local car industry which is also based on imports given that Zimbabwe does now have an indigenous car making company. This argument of trying to protect few big importers of new cars or car kits is ruinous in that it condemns thousands of other individuals who have been importing cars over the years and these cars including commuter omnibus minibuses have served the country’s needs at an affordable price.
The second theory that imported reconditioned cars are past their life since they would have been fully depreciated in accounting terms totally misses the point. There is a huge and material difference between a car’s accounting life (book value) and its economic value according to its Net Present Value (NPV) derived from its discounted cashflows (DCF) based in cash generated or cash saved through the use of the car over its usable life. Under most accounting systems a car would have a maximum life of about 5 years which is just a quarter of its economic life of 20 years (the period most cars are in usable condition).
It is therefore very unrealistic and short-sighted to ban imports of cars just basing the decision on one variable i.e the accounting life of the car. This totally ignores its economic life which is more practical and more important particularly given how Africans and Zimbabweans have become very resourceful in extending car lives given the general resource shortage.
In many advanced countries cars are on the road well into 20 years after first year as new. The financing systems are in place which allow people to replace cars more often as this is a very well supported industry. People are given incentives to replace their cars sooner because these countries can afford it plus this acts as stimulus for their car industries. This explains why the governments of Canada and USA took bold steps to save General Motors and Chrysler ,this was to protect the industry.
In Zimbabwe’s case that industry is actually stronger on the importing and repair side and as such the Goverment policy should be loosening import constraints to allow more cars to be imported.This will reduce car prices and allow people to replace their cars sooner and slowly eliminate the much older and dangerous cars off the road as recent imports will be cheaper and available.The proposed ban is therefore a step in the wrong direction in terms of solving old car and dangerous car problem on Zimbabwe’s roads.
The Government Gazette on April 1 2011 of Statutory Instrument 44 of 2011 (2) section 1 (2) ("Title and date of commencement of the Road Traffic (construction, equipment and use) Regulations, 2010, published in Statutory Instrument 154 of 2010 as amended by the deletion of 1st of December, 2010"), and the substitution of 1st of July, 2011.
Government in September last year gazetted Statutory Instrument 154 of 2010 (Road Traffic Construction), which provided that vehicles that have been on the road for at least five years would not be allowed to enter the country after March 31 this year.
The statutory instrument says in part: "No person shall import any vehicle for registration and use on any road in Zimbabwe if the year of manufacture from the country of origin is more than five years. Provided that this shall not apply to any motor vehicle registered in Zimbabwe before the 31st of March, 2011."
The statutory instrument also stipulates that left-hand drive vehicles would not be registered after March 31 2011 and would be banned from Zimbabwean roads by December 31 2015. Left-hand drive vehicles are considered technically unsuitable for Zimbabwe's roads. The ban, which was initially set for March 31 this year before being extended to June 30 is now set to be effected end of June this year.
For a country which does not have a solid and reliable public sector transportation system the availability of cheap ,imported cars is necessary especially to assist small start up businesses. This sector is based on being able to improvise and being resourceful and having a small run about car is one of those “must have” for a small business still starting out.
The move to ban imports is therefore undesirable and counter productive in terms of making it very difficult for start ups to acquire cars which they require for day to day running of a business. It is interesting to note that business lobby groups such as CZI ,AAG and civil organizations such as ZCTU and ZIMTA have been rather silent over the issue even though their members will be affected by the ban.
This article was prepared exclusively for 3MG MEDIA by GMRI Capital www.gmricapital.com
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