Policy uncertainty slows EV adoption in Africa

From the newsletter

Kenya's electric motorcycle industry faces challenges due to regulations favouring internal combustion engine vehicles, according to an analysis by Kenyan media. Legal Notice 112 requires assemblers to have bonded warehouses to qualify for incentives under the East African Community Duty Remission Scheme. 

• Many assemblers lack this capacity and therefore cannot enjoy the benefits. Establishing bonded warehouses is costly and time-consuming for small businesses, and therefore risks locking out EV startups. 

• Stakeholders are asking if regulations are striking the right balance between providing a favourable environment for EVs and creating a sustainable transition pathway for fuel-based vehicles.

More details

• Ethiopia was the first country in the world to ban the import of fuel-powered vehicles, but it faces challenges in implementing this ban. International organisations, such as the African Union, are seeking exemption, believing they should have certain privileges and immunity. Furthermore, despite aiming to make EVs more affordable, Ethiopia recently increased import customs duty on EVs from 15% to 20%.

• Industry players have criticised the lack of clarity and bureaucracy surrounding electric vehicle registration. They highlight difficulties in obtaining necessary permits, including number plates for electric motorbikes, which are still relatively new in the country.

• Ghana also faces challenges in its EV adoption journey. Its 2024 budget promised to eliminate EV import taxes, but implementation has been unclear. The government now states that only electric buses imported by the government are exempt from duties, contradicting the initial announcement and causing confusion in the market.

• Meanwhile, Kenya's 2024 Finance Bill, in a move that contradicts the government's stated goal of growing the EV sector, removed certain EV benefits such as reduced import duties and VAT exemptions to increase tax revenue. Uganda initially exempted most EVs from import duties in its 2023/24 Finance Act but reversed this decision in the 2024/25 Act, retaining exemptions only for lithium-ion batteries and EV parts.

• South Africa presents a mixed picture. While it has introduced tax incentives for electric and hydrogen-powered vehicle production, these incentives won't be effective until 2026. Currently, imported EVs face a 25% tax significantly higher than the 18% duty on internal combustion engine vehicles, hindering EV adoption. On top, EVs are subject to ad valorem tax, which can go up to 30% on luxury cars. South Africa, through its electric vehicle white paper, intends to review the policies to make EVs more affordable.

• In Nigeria, the VAT Modification Order 2024 introduces exemptions for various energy products and infrastructure, including diesel, CNG, EVs, and LNG infrastructure. This could potentially create competition for EVs in the Nigerian market unless more consumer incentives are provided.

Our take

• All countries in Africa, except Ethiopia, currently allow the import of fuel-based vehicles without a clear phase-out plan, although Rwanda has announced a phased approach starting with a ban on fuel-based motorcycles in Kigali in 2025. For successful EV adoption, a well-defined phase-out plan is essential to prepare the public. Sudden bans can hinder adoption, as consumers need time to make informed purchasing decisions. Simply pushing EVs without a clear transition strategy will not be effective.

• Furthermore, charging infrastructure needs to keep pace with EV adoption. However, even in leading African countries like Morocco and South Africa, charging infrastructure lags significantly. A balanced approach that includes both home and public charging options, with a mix of fast and slow charging speeds depending on location, is crucial for widespread EV adoption.

• Even then, governments must clearly explain their policy and regulatory intentions to the public. They need to be transparent about what is included in their plans to avoid raising false hopes among consumers.