ADDIS ABABA SCIENCE AND TECHNOLOGY

UNIVERSITY

THE ROLE AND CHALLENGES OF VEHICLE

ASSEMBLED IN ETHIOPIA:

THE CASE OF BISHOFTU AUTOMOTIVE INDUSTRY

By

MILION KIROS BAHTA (ID: GSR 251/09)

ADVISOR: DUGASA MULUGETA (PhD)

May.2019

ADDIS ABABA, ETHIOPIA

ADDIS ABABA SCIENCE AND TECHNOLOGY UNIVERSITY

THE ROLE AND CHALLENGES OF VEHICLE ASSEMBLED

IN ETHIOPIA:

THE CASE OF BISHOFTU AUTOMOTIVE INDUSTRY

By

MILION KIROS BAHTA (ID: GSR 251/09)

A thesis submitted to Addis Ababa Science and Technology

University, College of Natural and Social Science in partial fulfillment

of the requirements for the Degree of Master of Business

Administration (MBA).

May 2019

ADDIS ABABA, ETHIOPIA

 Declaration

I hereby declare that this thesis entitled “The role and challenges of vehicle assembled in

Ethiopia: The case of Bishoftu Automotive Industry” was composed by myself, with the

guidance of my advisor, that the work contained herein is my own except where explicitly stated

otherwise in the text, and that this work has not been submitted, in whole or in part, for any other

degree or processional qualification.

Milion Kiros Bahta Signature __________________ May. 2019

I
 Certificate

This is to certify that the thesis prepared by Milion Kiros Bahta entitled “The role and challenges

of vehicle assembled in Ethiopia: The case of Bishoftu Automotive Industry” and submitted in

fulfillment of the requirements for the Degree of Masters of Business Administration complies

with the regulations of the university and meets the accepted standards with respect to originality

and quality.

Signature: Date:

Dugasa Mulugeta (PhD) ________________ ___________

Thesis Advisor:

II
 ADDIS ABABA SCIENCE AND TECHNOLOGY UNIVERSITY

Certificate

THE ROLE AND CHALLENGES OF VEHICLE ASSEMBLED IN

ETHIOPIA: THE CASE OF BISHOFTU AUTOMOTIVE

INDUSTRY

By

MILION KIROS BAHTA (ID: GSR 251/09)

Signature: Date:

______________________________________ ________________ ___________

Dean, College of Natural and Social Science

______________________________________ ________________ ___________

External Examiner:

______________________________________ ________________ ___________

Internal Examiner:

III
 Dedication

This Thesis work is dedicated to my friend, to Hadgu Abay Adal and my classmate Naizgi Desta.

IV
 Acknowledgment

First and foremost I thank the almighty GOD, for having finally made this humble effort a

reality. I am very thankful for the contribution of many people during the course of this thesis

work. Without their help this thesis could not have been completed.

I want to extend my sincere appreciation to my advisor Dugasa Mulugeta (PhD), for his valuable

advice, constant support, commitment, dedication, encouragement and precious guidance,

creative suggestions and critical comments, and for being endless enthusiastic from the

beginning to the end of the research.

I wish to express my sincere appreciation to Bishoftu Automotive Industry, and all staff

members, for giving me an opportunity to observe and their cooperation in filling out

questionnaire, and provided very valuable information and data required for my thesis work.

Finally, I wish to express my warmest gratitude to my friends and my parents for their constant

support, help and love that made me possible to undertake the Post Graduate studies. Last, but

not least, I like to thank all my friends and colleagues, for their love, encouragement and support

throughout the post graduate study.

V
 Abstract

The main intention of this research is to analyze the role and challenges of locally vehicle

assembled in Ethiopia, the case of Bishoftu Automotive Industry. There are small numbers of

vehicle assemblers that are on operation, and they are struggling to make assembled vehicles

throughout the country which are already in operation. Thus, the researcher is encouraged to

study attentively and believes that it has to be studied and recognized the role and challenges of

vehicle assembly in Bishoftu Automotive Industry as soon as it is new insight. In recent year,

those automotive vehicle assemblies are emerging and transforming from vehicle importing

business to vehicle Assembling business. To address this research title, the researcher uses 75

randomly selected respondents and prepared questioner with interviews used for the purpose of

data collection, then primary and secondary data were collected. Descriptive method of data is

used to analyze the result in to positive and negative aspects then the findings are triangulated

by Qualitative and quantitative data. The finding indicates that, the vehicle assembly has a vital

role in regard to profit, economic role, employment opportunity, and technology transfer. The

reason for all major challenges on locally assembled vehicles are Brokers, attitude of the society

towards Second hand imported vehicle and Lack of skilled specialized man power though some

of the challenges that should be solved in the long run perspectives. Relevant recommendations

were given the ministry of industry as well as the policy making body of the government to give

due attention regarding giving privileges and arranging market lines on the economy.

Key words: Bishoftu automotive industry, government policy, technology transfer

VI
 Tables of contents
Table of Contents page No.
Declaration ....................................................................................................................................... I
Certificate........................................................................................................................................ II
Dedication ..................................................................................................................................... IV
Acknowledgment ............................................................................................................................V
Abstract ......................................................................................................................................... VI
Tables of contents ........................................................................................................................ VII
List of Tables ................................................................................................................................ IX
List of Figures ............................................................................................................................... XI
CHAPTER ONE ......................................................................................................................... - 1 -
INTRODUCTION ...................................................................................................................... - 1 -
1.1 Back ground of the study ................................................................................................. - 1 -
1.2 Background of the organization ....................................................................................... - 3 -
1.3 Statement of the problem ................................................................................................. - 4 -
1.4 Objective of the study ...................................................................................................... - 5 -
1.4.1 General objectives........................................................................................................... - 5 -
1.4.2 Specific objective ............................................................................................................ - 5 -
1.5 Research question ............................................................................................................. - 5 -
1.6 Significant of the study .................................................................................................... - 5 -
1.7 Scope of the study ............................................................................................................ - 6 -
1.8 Limitation of the study ..................................................................................................... - 6 -
1.9 Definitions of key terms ................................................................................................... - 7 -
1.10 Organization of the study ................................................................................................. - 8 -
CHAPTER TWO ........................................................................................................................ - 9 -
LITRATURE REVIEW .............................................................................................................. - 9 -
2.1 Introduction .................................................................................................................... - 9 -
2.2. State of the automotive industry ............................................................................. - 13 -
2.3 The evolution of industry and industrial policy in Ethiopia ............................................ - 14 -
2.4 Major trends of world automotive industry ..................................................................... - 16 -
2.4.1 Global market dynamics............................................................................................ - 16 -
2.4.2 Establishment of global alliances............................................................................ - 16 -
2.4.3 Industry Consolidation .............................................................................................. - 16 -
2.5 Economics of automobile industry .................................................................................. - 17 -
2.5.1 Production ............................................................................................................... - 17 -

VII
 2.5.2 International Trade .................................................................................................. - 19 -
2.5.3 Dynamics of Automotive Trade.............................................................................. - 20 -
2.6 Automotive sector in Africa ......................................................................................... - 22 -
2.6.1 A comparative look at Ethiopia, Kenya and Nigeria .............................................. - 24 -
2.6.2 Automotive Industry in Ethiopia ............................................................................ - 25 -
2.7 Policy environment ....................................................................................................... - 39 -
2.8 Factors affecting locally assembled vehicles in Ethiopia ................................................ - 43 -
2.9 The manufacturing process ........................................................................................... - 45 -
2.10 Automotive assembly ................................................................................................... - 47 -
2.10.1 Interior Auto parts and Accessories ........................................................................ - 49 -
2.11 Research gap analysis vision ......................................................................................... - 50 -
CHAPTER THREE .................................................................................................................. - 51 -
METHODOLOGY ................................................................................................................... - 51 -
3.1 Introduction ................................................................................................................... - 51 -
3.1.1 Research Design...................................................................................................... - 51 -
3.1.2 Sample size and sample techniques ........................................................................ - 51 -
3.2 Data Sources ................................................................................................................. - 52 -
3.2.1 Primary Data source ................................................................................................ - 52 -
3.2.2 Secondary Data sources .......................................................................................... - 52 -
3.3 Data Collection method ................................................................................................ - 52 -
3.3.1 Questionnaires......................................................................................................... - 53 -
3.3.2 Document and review ............................................................................................. - 53 -
3.4 Data Analysis................................................................................................................... - 53 -
CHAPTER 4 ............................................................................................................................. - 54 -
DATA ANALYSIS AND INTERPRETATION ...................................................................... - 54 -
4.1 Introduction ................................................................................................................... - 54 -
4.1.1 Respondents Profile ................................................................................................ - 54 -
4.1.2 Questionnaire analysis .............................................................................................. - 56 -
CHAPTER 5 ............................................................................................................................. - 69 -
CONCLUSION AND RECOMMENDATION........................................................................ - 69 -
5.1 CONCLUSION ............................................................................................................. - 69 -
5.2 RECOMMENDATION ................................................................................................ - 70 -
REFERENCES
APPENDIX

VIII
 List of Tables

List of Tables Page No

Table 2.1: Annual Study of Automotive assembly plant (2012)……………………………..….13

Table 2.2: Socioeconomic indicator source: (deloite Africa insights, 2016)………………….…24

Table 2.3: Auto indicator source :( Deloitte, 2016)……………………………………….……..25

Table 2.4: Financial inclusion indicators source :( deloite Africa insights, 2016)………....……25

Table 2.5: List of vehicle assembly companies …………………………………………....……25

Table 2.6: Tax rate for vehicle imports in Ethiopia, 2015……………………………….………34

Table 2.7: comparative analysis of Vitiz and land Cruiser………………………………………37

Table 2.8: Global Fuel Economy Initiative Study in Ethiopia ……………………..….……...…42

Table 2.9: Annual sales Bishoftu Automotive Industry (2005-2008)………………….…..……50

Table 4.1: Total numbers of questioners distributed returned and unreturned……...…….….….54

Table 4.2: General Information of Respondents …………………………...………………...….55

Table 4.3: Influential factor for automotive customer choice……………………………………56

Table 4.4: competition between assembled vehicles with second hand vehicle…………………57

Table 4.5: The market value of assemble vehicle……………………………...…………..……58

Table 4.6: Market accesess of locally assembled vehicle…………………………………..……58

Table 4.7: profit of locally assemble vehicle …………………………………………….……59

Table 4.8: creating job opportunity for the citizens……………………………………………...60

Table 4. 9: Job satisfaction on the products of assembled vehicle product…………….……….60

Table 4.10: Technology transfer practices of assembled vehicle company……………….…….61

Table 4.11: performance of vehicle assembly in terms of producing …………………………61

IX
Table 4.12: Main hindering the vehicle assembly industry………………………………….….62

List of Tables continued Page No

Table 4.13: Challenges that are dragging the industry…………………………………….…….63

Table 4.14: critical factors impacting vehicle assembly industry…..……………………………63

Table 4.15: Economic contribution of vehicle assembly to the country………………......……..64

Table 4.16: Positive impact of vehicle assembled industry …………………………,,,……..65

Table 4.17: Contribution of vehicle assembly to automotive industry…………………,,………66

Table 4.18: Better performance of the industry………………………………………………….67

Table 4.19: Evaluate quality assurance…………………………………………………………..67

Table 4.20: Spare availability of the organization……………………………………………….68

X
 List of Figures

List of Figures Page No

Figure 2.1: Geographical Locations of producers (%)……………………...……………………11

Figure 2.2. Annual vehicles registration report…………………………………………….……23

Figure 2.3. Intercity bus assembled by Bishoftu Automotive Industry………………………….33

Figure 2.4 the vehicle manufacturing process is shown in the diagram…………………………47

Figure 2.5 Engines assemble line ………………………………………………………………..48

XI
 ACRONYMS

ACRONYMS
APCS- Armored personnel carries
FDRE-Federal democratic republic of Ethiopia
AMCE: Automotive manufacturing company of Ethiopia
BAI- Bishoftu Automotive Industry
SUV- sport utility vehicles
OICA- organization international des constucteursd‟ automobiles
OEM- Original Equipment Manufacturer
CKD- completely knocked down
SKD- semi Knocked-Down
CAD- Computer-Aided Design
CAE- Computer-aided Design
IMVP-International Motor Vehicle Programmed at
ICE- Internal Combustion engine
VER- Voluntary export restraints
CAGR- compound annual growth rate
EIC- Ethiopian investment commission
FBU- Fully Built-Up
GTP- Growth and Transformation Plan
AGOA- African Growth and Opportunity Act
FIAT- Fabbrica Italiana Automobili Torino
LCV- Light Commercial Vehicles
HCV- Heavy commercial Vehicles

XII
XIII
 CHAPTER ONE

INTRODUCTION

1.1 Back ground of the study

Ethiopia is one of the land-locked countries in African Continent, being one of the African

countries, needed a continuous improvement in agriculture, Manufacturing and service sectors. It

uses mainly Djibouti port, which is located about 1000 km away from the capital City for import

and export of goods. Ethiopia does not manufacture automotive, construction Machines and

agricultural equipment locally at present, it import those from various countries of the world.

Automotive importing companies in Ethiopia are importing different types of Vehicles to the

country vehicle market. There is a need of discussion on major issues on the truck market trend

in Ethiopia and to indicate ways of increase the contribution of an Automotive sector to

the country‟s economy. The overview of Ethiopia economical, geographical and cultural

condition including investment opportunities In relation to the automotive industry. The demand

for automobiles is mainly influenced and adversely or positively affected by Price and

running costs, Economic development (GDP), Household income (purchasing power)

Promotion and advertisement.

The automotive industry will have immense contribution to the growth of the national

Economy if it is well addressed and supported with attractive incentives, Job creation market

Access and saving foreign currency. The major problems observed in the automotive sector are

in the areas of Government regulation, lack of adequate road infrastructure, absence of trained

manpower and lack of adequate financing facilities. The main objective of this study is to

examine the development of the automotive industry in Ethiopia and its contribution to the

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Overall economy in general. This tried to address only the development and market trend of

automotive industry in Ethiopia and the overall effect on the freight transport sector and

Performance. As it involves wide and complex issue, one should require detail analysis

Evaluation and also the experience of other (Mebrhatu, M. 2018).

Ethiopia is the second largest population in Africa comprising of more than 90 million people.

Comparing the vehicle a variable in Ethiopia‟s road with other countries of Africa, it could be

categorized with low number of vehicle. The number of registered vehicle in Ethiopia as of 2016

was 662,000. As the observation from the road, the trend of vehicle purchasing is petting created

from time to time. The increment of plate numbers shows that increment of vehicle in the road.

Ethiopia annually imports around 18,000 vehicles and the majority of which are dominated by

second-hand Toyota brand, according to 2015 study Deloitte Africa (South Africa international

research firm). Ethiopian modern vehicle assembly history dated back to the 1970‟s the Italian

car manufacture established the “Automotive Manufacturing Company of Ethiopia (AMCE)” in

joint venture with the then Ethiopian government. Bishoftu Automotive Industry is assembling

civilian and military vehicle products to local and to African markets. These are also other major

vehicle assembly companies like Mesfin Engineering assembly, Greeley Saba brand from china

and Peugeot from European, model. An addition belay as motors assembly FAW model from

china and Kia motors model from Korea. The vehicle assembly firms are producing the vehicles

to the market and are stated the vehicle driven on the road. The sector is at low level of

development in comparison to other countries including those in Africa (Mc manufacturing

consulting Magazine, 2017).

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1.2 Background of the organization

Bishoftu Automotive Engineering Industry is one of the Industries under FDRE Metals &

Engineering Corporation. The industry is located about 48 km from Addis Ababa, at Bishoftu

Town. It was originally constructed to render maintenance services for tanks, armored vehicles,

military vehicles, artillery weapons, optical devices, small arms, communication and control

equipment. Implementation of the project began in February 1984 and was interrupted in May

1991 following the fall of Derg regime. From 1991 up to 2008 the project work finalized and

overhauling of Tanks and Ural military trucks started. Again in 2008 project 40720 re-

organized under defense industry sector by the name of Bishoftu motorization engineering

complex. Bishoftu Motorization Engineering Complex (2008 to 2010) carried out overhauling of

Tanks, Armored Personnel Carriers (APCS), artillery materials, optical devices, communication

equipment, military trucks and generators. In 2010, the defense industry sector re- organized by

the name of Metals and Engineering Corporation separated from defense. From then; Bishoftu

motorization engineering complex was re-named as Bishoftu Automotive Engineering Industry

under metals and Engineering Corporation. Today Bishoftu Automotive Engineering Industry is

the single largest vehicle manufacturer in Ethiopia, from light vehicle to heavy duty commercial

trucks, buses, special purpose vehicles, military trucks and APCS. In addition the industry works

overhauling and upgrading of Tanks and Armor Personnel carrier (Bishoftu automotive industry

company profile, 2018).

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1.3 Statement of the problem

The major vehicle assemblers in Ethiopia are Bishoftu Automotive industry (BAI), Mesfin

Industrial Engineering and Belayab motors, among these prominent and dominating the local car

market at present is BAI. BAI assembles civilian commercial and passenger vehicles like buses,

pickups, sports utility vehicles (SUV) and trucks like the widely used Sino truck. BAI is locally

famous for its 30 and 50 passenger carrier blue Bishoftu buses that are being used as public

transport in cities like Addis Ababa; increasingly.BAI also exports some commercial vehicles to

Somali-land. It also assembles military equipment such as tanks and armored personnel carriers

(APCs) for the Ethiopian defense forces and African union peace keeping missions, maintains air

planes and produces locomotive trains. BAI has plans to assemble and manufacture motorcycles,

bicycle, light and heavy trucks and other vehicles as well. The available statistics indicated that

in 2015, only 160,000 vehicles were in use in Ethiopia to imply a car per 500 inhabitants making

the country to have the lowest motorization rate globally. It‟s estimated that annually, 18,000

vehicles are brought into Ethiopia‟s market most of which are second-hand vehicles. Passenger

vehicle sales are mainly driven by government while construction and agribusiness industries

control the sale of new commercial vehicles. The exportation and importation of used

commercial vehicles are dominant in Ethiopia and in 2015 the imports were valued at $875

million making it the most valued overall import. The Automotive manufacturing company

known as Bishoftu Automotive Industry (BAI) contributed much to the above revenue and saves

foreign currency (Mc manufacturing consulting Magazine, 2017).

Through this all conditions there are only small numbers of vehicle assemblers that are on

operation, and they are struggling to make assembled vehicles throughout the country. From

them Bishoftu Automotive Industry (BAI) which is already in operation. Thus, the researcher is

-4-
encouraged to study attentively and believes that it has to be studied and recognized the role and

challenges of vehicle assembly in Bishoftu Automotive Industry since it is new insight.

1.4 Objective of the study

1.4.1 General objectives

Bishoftu Automotive Industry assembled allows Ethiopian vehicle industry to offer new

vehicles with reasonable and competitive price for the society. However, providing locally

assembled vehicles to society is not easy due to convenient and inconvenient reasons.

Therefore the main objective of this study is to examine the role and challenges of vehicle

assembly in Bishoftu Automotive Industry.

1.4.2 Specific objective

The specific objectives are:

 To examine the role of Bishoftu automotive to the vehicle assemble industry.

 To evaluate the impediment faced by the sector to achieving its objectives

 To evaluate the performance of Bishoftu automotive industry

1.5 Research question

Basic Research Question:

Based on the problems stated in the study, the researcher develops the following research

questions:

 What benefits are obtained from Bishoftu automotive industry?

 What are the challenges faced in Bishoftu automotive industry?

 How do you evaluate the performance of bishfttu assembled vehicle industry?

1.6 Significant of the study

The results and outcome of the study give awareness about the current growth of automotive

vehicle assembler organization, specifically in Bishoftu vehicle assembly to understand the role

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and challenges of vehicle assembly in Bishoftu Automotive Engineering Industry. Furthermore,

this study will assist an input for the policy makers and other researchers who will be interested

to conduct further study concerning the issue by offering valuable information to encourage

locally vehicle assembled industry throughout the country. This study may also a vital role for

developing countries like our country Ethiopia to enhance automotive industry, because of the

government transforms from agriculture to industry. Finally; the study may be gained new

insight from the research based on the facts found, the study may provide for Technical

managers, technicians, vehicle sellers are better to know about changes required and the

opportunity vehicle assembly industry direction to speed up the vehicle assembler organization.

1.7 Scope of the study

Currently Automotive vehicle assembly industry in Ethiopia especially Bishoftu automotive

industry is vital role opportunities as well as it also faces several challenges. However; theses

roles and challenges are not well studied and identified to promote growth and the economic

contribution of the vehicle assembly industry. Thus, the study focuses mainly on the role and

challenges locally vehicle assembled in Bishoftu automotive industry. The purposive sampling

methods minimize the general result and this research might not be generalized to all vehicle

assembly industry in Ethiopia.

1.8 Limitation of the study

This research depends on the data of few question and limited literature review on the area

automotive vehicle assembly specifically in Bishoftu automotive industry. The result could not

be considered as a fulfill study in detail on the role and challenges of the vehicle assembly in

Bishoftu automotive industry. The fact that the researcher is self sponsored the study focus only

in one research it may limit the study of the scope due to financial fund and time constraints.

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Despite this the investigation will suffered from a number of parameters which is data and

available documents in the vehicle assembler companies this factor redistricted to research in the

study area. The last but not the least time constraints of vehicle assemblers will be the limitation

of the study it will hardly possible to meet for the interview or to fill out the questionnaire upon

to our appointment. Lack of feedback respondents‟ willingness for cooperation also the other

limitation of the study.

1.9 Definitions of key terms

Bishoftu Automotive Engineering Industry: Bishoftu Automotive Engineering Industry is the

single largest vehicle manufacturer in Ethiopia, from light vehicle to heavy duty commercial

trucks, buses, special purpose vehicles, military trucks and Armor Personnel carriers (APCS). In

addition the industry works overhauling and upgrading of Tanks and APCS (Bishoftu automotive

industry company profile, 2018).

Government regulation: A rule of order having the force of law, prescribed by a superior or

competent authority, relating to the actions of those under the authority's control

(Janosik, R.1987).

Technology transfer: technology transfer also called transfer of technology (TOT), is the

process of transferring (disseminating) technology from the places and in groups of its

origination to wider distribution among more people and places (technology transfer Wikipedia,

2019)

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1.10 Organization of the study

Organization study was covered five chapters. Chapter one consist of background of the study,

statement of the problem, objective, significance, scope, organizational of the study. Chapter two

consists of literature review. The third chapter consists of methodology of the study. Chapter

four consists of Data Analysis and Interpretation of the findings and the final chapter five

consists of conclusion and recommendations.

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 CHAPTER TWO

LITRATURE REVIEW

2.1 Introduction

By definition an automobile or car is a wheeled vehicle that carries its own motor and transports

passengers. The automobile was not invented in a single day by a single inventor. The history of

the automobile reflects an evolution that took place worldwide. It is estimated that over 100,000

patents created the modern automobile. You can point to the many firsts that occurred along the

way to producing the modern car; and with that goal in mind, highlighted below are articles,

biographies, time lines, and photo galleries related to the history of the automobile and its many

inventors. The automobile as we know it was not invented in a single day by a single inventor.

However, we can point to the many firsts that occurred along the way. It started with the first

theoretical plans for a motor vehicle that had been drawn up by both Leonardo da

Vinci and Isaac Newton (Nicolas, J. 1769).

The very first self-propelled road vehicle was a military tractor invented by French engineer and

mechanic; Nicolas Joseph (1725 - 1804).But cannot use a steam engine to power his vehicle,

built under his instructions at the Paris Arsenal by mechanic Brezin. It was used by the French

Army to haul artillery at a whopping speed of 2 1/2 mph on only three wheels. The vehicle had

to stop every ten to fifteen minutes to build up steam power. The steam engine and boiler were

separate from the rest of the vehicle and placed in the front. The following year (1770), Cugnot

built a steam-powered tricycle that carried four passengers.In1771; Cugnot drove one of his road

vehicles into a stone wall, making Cugnot the first person to get into a motor vehicle accident.

This was the beginning of bad luck for the inventor. After one of Cugnot's patrons died and the

other was exiled, the money for Cugnot's road vehicle experiments ended. Steam engines

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powered cars by burning fuel that heated water in a boiler, creating steam that expanded and

pushed pistons that turned the crankshaft, which then turned the wheels. During the early history

of self propelled vehicles both road and railroad vehicles were being developed with steam

engines. (Cugnot also designed two steam locomotives with engines that never worked well.)

Steam engines added so much weight to a vehicle that they proved a poor design for road

vehicles; however, steam engines were very successfully used in locomotives. Historians, who

accept that early steam-powered road vehicles were automobiles, feel that Nicolas Cugnot was

the inventor of the first automobile. The automotive industry is an important sector globally,

impacting global economic activity as a driver of growth, employment and income According to

the organization international des constructeursd‟Automobiles (OICA), were the automotive

industry a country, it would be the sixth largest economy in the world. It is one of the largest and

most advanced scale industries, in terms of output levels, direct and indirect employment,

management practices and manufacturing standard with 8.8 million direct employees among

automakers and their suppliers. In addition to the direct employees, about five times more are

employed indirectly in related manufacturing and service provision, such that an estimated more

than 50 million people earn their living from cars, trucks, buses and coaches .Its production and

sales have been and is a major indicator of the state of a country‟s economy and every country is

vying to be a part of it. There are eleven lead firms from three countries, Japan, Germany and the

USA, that dominate production in the main markets. The global automotive industry is currently

led by the main Original Equipment Manufacturer (OEMs) that is Toyota, General Motors,

Volkswagen, Ford, Honda, PSA, Nissan, BMW and Chrysler, which function in an international

competitive market. The industry is relatively fixed in its structure, its relationships, its

participants and influential players. An industry that, despite having many options developed in

terms of production, it is becoming more rigid with regard to who participates and who does not.

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Primary located in developed countries, its importance has surged in developing countries over

the years. The industry has grown globally from 65.4 million to 84.1 million total new vehicles

sold over the period 2005 to 2012(OICA) and much of the production has shifted to developing

countries . Production is now interspersed throughout the globe with facilities on every continent

the automotive industry past and present is seen as a core industry, a unique economic anomaly

that has dominated the twentieth century. It has created changes in the way we live and work that

were unimaginable before, and today, its products still continue to transform our society and

everyday lives. For much of the developed world, and increasingly for the developing world, it is

a pillar industry, flag of economic progress.

Figure 2.1: Geographical Locations of producers (%)

Automobile industry is a symbol of technical marvel by human kind. Being one of the fastest

growing sectors in the world its dynamic growth phases are explained by Nature of competition,

product life cycle and consumer demand. Today, the global Automobile industry is concerned

with consumer demands for styling, safety, and Comfort; and with labor relations and

manufacturing efficiency. The industry is at the Crossroads with global mergers and relocation of

production centers to emerging Developing economies. Due to its deep forward and backward

linkages with several key segments of the economy, the automobile industry is having a strong

- 11 -
multiplier effect on the growth of a country and hence is capable of being the driver of economic

growth. it plays a major catalytic role in developing transport sector in one hand and help

industrial sector on the Other to grow faster and thereby generate a significant employment

opportunities. Also as Many countries are opening the land border for trade and developing

international road Links, the contribution of automobile sector in increasing exports and imports

will be due to its deep forward and backward linkages with several key segments of the

Economy, the automobile industry is having a strong multiplier effect on the growth of a Country

and hence is capable of being the driver of economic growth..As automobile industry is

becoming more and more standardized, the Level of competition is increasing and production

base of most of auto giant companies are being shifted from the developed countries to

developing countries to take the Advantage of low cost of production. Thus, many developing

countries are making serious efforts to grab these opportunities which include many Asian

countries such as Thailand, China, India and Indonesia. The manufacture of motor vehicles

involves the manufacture and assembly of the final product from a number of metallic, plastic

and electrical components. A wide range of processes are involved including metal cutting,

pressing, polishing, grinding, welding, plating, & painting. The vehicle industry produces many

parts itself (e.g. by subsidiaries), while other parts are purchased. Engines are cast from

aluminum or iron, and further processed in engine plants. Vehicle bodies are generally formed

out of sheet steel, although there is a trend toward more plastic, reinforced fiberglass and

aluminum parts in vehicle bodies (Nicolas, J. 1769).

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2.2. State of the automotive industry

The automotive industry is a major industrial and economic force worldwide. It makes 60

million cars and trucks a year, and they are responsible for almost half the world's consumption

of oil. The industry employs 4 million people directly, and many more indirectly. Despite the

fact that many large companies have problems with overcapacity and low profitability, the

automotive industry remains very strong influence and importance. The industry also provides

well-paying jobs with good benefits, has heavy linkages with supplier industries (which gives it

an over sized role in economic development), and has a strong political influence. The power of

linkages is given by the following real but unspecified example of forecast economic impacts of

a proposed automotive assembly plant:

Table 2.1: Annual Study of Automotive assembly plant (2012)

Direct, Indirect And Induced Impacts

Year 2006 2007 2008 2009 2010 2011

Employment 189 3,583 7,800 10,611 12,240 12,242

Personal Income 7,114 141,912 368,820 561,168 684,180 735,696

Revenue, State
1,032 20,585 53,498 81,399 99,242 106,714
Government

Sales 16,620 318,492 1,405,080 3,024,000 3,792,960 3,864,240

Source: Annual Study of Automotive assembly plant, Annual reports

Assumptions: Plant employment-2,000; Investment-$845 million

The industry is more than 100 years old. It started in Germany and France, and came of age in

the U.S. in the era of mass production. Vehicle volumes, efficiency, safety, features and choice

have grown steadily throughout the industry's history. It is so synonymous with 20th century

industrial development, and so intertwined with its twin marvels, mass production and mass

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consumption, that it has been called the "industry of industries."However, all is not well in the

automotive world. Worldwide, average margins have fallen from 20% in the 1920s to 5% now,

with many companies losing money. This poor profitability performance is reflected in the

industry's market capitalization: despite its huge revenues and employment, the automotive

industry accounts for only 1.6% of the stock market in Europe, and 0.6% in the U.S. There is a

big contrast between the industry's lackluster financial success and its over-sized social role,

share of employment and political influence. These facts mask a wide range of operational and

financial performance. Toyota, the most successful large auto company, has a market value 15

times larger than General Motors.

The overall performance of the industry can be traced to overcapacity and mature markets in

developed countries. In the U.S., Europe and Japan, which account for 80% of world sales,

growth has been stalling for many years. The natural response to slowing growth and increasing

productivity is to reduce capacity. However, existing plants are very painful to scrap: mass

production confers a strong cost advantage, which has traditionally encouraged very large and

expensive plants. The result is excess capacity worldwide. Even continuing consolidation in the

industry is not resulting in capacity reduction. Focusing on the U.S., the automakers have been

losing market share for three decades, and new plants by non U.S.based companies have

increased capacity and competition (Yorgos, P. and Michelle, H. 2007).

2.3 The evolution of industry and industrial policy in Ethiopia

In Ethiopia industry in the modern sense of the term emerged as an economic entity only at the

turn of the 20th century. The establishment of a strong central government, expansion of cities

associated with the installation of railways and the strengthening of foreign relations increased

the demand for imported manufacturing commodities. This, in turn, encouraged the

establishment of import substituting factories domestically and as a result modern manufacturing

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enterprises began to emerge in the 1920s. After a brief disruption in the Second World War

period, the manufacturing sector started to get momentum in the 1950s. During this period a

number of new industries which significantly contributed to the development of the national

economy were established. The 1950s are also marked by the start of a comprehensive plan to

stimulate and guide the country‟s industrial and economic development in general. Ethiopia has

seen three regimes over the last eight decades. Keeping with the political ideologies governing

the economic principles of the time, these successive regimes adopted different policies for the

development of industry in the country. The industrial policies have distinctive features when

looking at the guiding vision (policy), ownership structure, and market orientation. Broadly, they

can be characterized as the import substitution and private sector-led (from early 1950s to 1974,

the Imperial regime); the import substitution and state led (from 1974 to 1991, the Dergue

regime), and the export-orientated and private sectored (since 1991, the Ethiopian People‟s

Revolutionary Democratic Front, (EPRDF)-led government).Government‟s broad economic and

industry specific policies are designed to increase the growth potential and international

competitiveness. In addition, Ethiopia‟s extensive minerals and energy resources ensure that

Ethiopia has relatively low utility charges for industrial users. Ethiopia‟s levels of educational

attainment are a source of competitive Need for Strengthening Automobile Industry in Ethiopia

International Journal of Modern Engineering Research (IJMER). The Ethiopian Government is

undertaking initiatives across the education spectrum to produce employees who will better meet

the changing needs of future employers. Ethiopia‟s welcoming attitude to foreign investment,

today, Invest Ethiopia, the Government‟s inward investment agency, provides foreign firms with

information in regard to potential investment opportunities in Ethiopia. Invest Ethiopia can

provide information on location, joint venture partners, establishment costs and skills and

taxation information (Mulu, G., 2013).

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2.4 Major trends of world automotive industry

2.4.1 Global market dynamics

The world's leading automobile manufacturers contrives into production facilities in emerging

markets in order to reduce production costs and therefore rise in profits. These emerging markets

include Latin America, China, Malaysia and other markets in Southeast Asia.

2.4.2 Establishment of global alliances

Now-a-days, there is trend of joint venture in global automotive industry. Most of the giant

automobile manufacturers are merging with each Others. The big three U.S. automakers (GM,

Ford and Chrysler) have merged with, and in some cases established commercial strategic

partnerships with other European and Japanese automobile manufacturers. The Chrysler

Daimler-Benz merger, were initiated by the European automaker in order to strengthen its

position in the U.S. market. Overall, there has been a trend by the world automakers to expand

by merging with other giant automotive companies in overseas markets.

2.4.3 Industry Consolidation

Increasing global competition among the global manufacturers And positioning within foreign

markets has divided the world's automakers into three Groups, the first group being GM, Ford,

Toyota, Honda and Volkswagen, and the two Remaining group manufacturers attempting to

consolidate or merge with other lower Group automakers to compete with the first group

companies. World automotive industry, in its early stages of development, was concentrated

mainly in hands of developed countries like U.S., Japan etc. But as automobile industry Become

more and more standardized, the production base of most of auto-giant Companies were shifted

from the developed countries to developing countries. Standardization makes production more

profitable in developing countries due to low cost of labor. That‟s why countries like Thailand,

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China today are the main production base for many multinational automobile companies (Felix,

K.2017).

2.5 Economics of automobile industry

Today‟s global automotive industry is full of opportunities and risks which are everywhere in the

retail environment. Currently, the automotive industry has too much of everything too much

capacity, too many competitors and too much redundancy and overlap. The Industry is in the

grips of a global price.

2.5.1 Production

Today, the large car manufacturers have a production facility in the different Markets and from

each platform a car is produced for that market as well as for exports to other markets. Big

players in automobile industry do not have just one big factory which Exports its products to all

other countries. In addition, the products are not identical in each different market. It may have

the same technical platform, but the design and the options and features differ between countries.

They are different because the demands of customers differ between countries. For example, in

South America, incomes are lower than in Western Europe and customers need more affordable

cars. In the USA the customers want more space in the car, and that's an important factor for a

car to be successful there. On the contrary, small cars are quite popular in India. It is not possible

to be in the high volume market and to send the same cars to every market all over the World. So

car makers are researching what their customers want and changing the car for each market

otherwise they will lose customers. More and more CKD (completely Knocked down) cars are

being produced for some countries in smaller volumes. That is often the case if there are barriers

to exporting cars to particular countries, and they are only being sold in smaller volumes. With

larger markets, where sales of particular models are high, companies really need their own plant

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which has its own suppliers of parts. Due to sharp competition and changing customer demand,

product development Process advances have been more significant than changes in product

architecture. Product cycles continue to grow shorter as more companies adopt the simultaneous

Engineering approach pioneered by Japanese automakers. At the same time, advances in

Computer Aided Design (CAD) and Computer Aided Engineering (CAE) tools are being used to

replace physical prototypes and testing processes. Now, major players (in post M&A situation)

take greater responsibility for product design and allow production base To get shifted to

advantageous location for low cost. However, still due to lack of Standardization, number of tiers

at the supply chain is not reduced. Moreover, when Design is replicated with modification for

physical product development, several Domestic issues need to be taken into consideration.

These are mainly legal liability, and Regulatory procedures. Furthermore, there is a technological

move towards modules, i.e. Self-contained functional units with standardized interfaces that can

serve as building Blocks for a variety of different products. Modularization is expected to

reshape the entire Supply chain in automobile industry as component designs will gradually get

shifted to Supplier companies. This is expected to reduce cost significantly and increase

efficiency. However, IMVP (International Motor Vehicle Programmed at MIT) found that cost

saving is still elusive. The absence of a clear cost advantage for modules, combined with the

Inherent technical difficulties of changing the highly integral product architecture of an

Automobile has reduced the probability of successful modularization. Nevertheless, number of

factors could still accelerate the move towards modularity, including Automaker efforts to shift

investment risk to suppliers, the increasing use of information Associated with the flexibility of

the technology to constantly produce different models from same platform. Some of the major

technological issues which are important currently are increasing energy Efficiency, competency

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of internal combustion engine (ICE), reducing the weight of Vehicles, and incorporating high-

tech safety features.

2.5.2 International Trade

The dynamics of international trade in automobile sector attracted attention of Economists and

policy makers to formulate trade strategy. International trade of an automobile has been

influenced both by liberalization as well as protectionism. In the 1970s and 1980s, the U.S. auto

industry faced its first major challenge from foreign competition as Japanese automakers

aggressively entered the American market. The decline of automobile sector in USA and rising

Japanese imports led to protectionism in USA through imposition of quota. This led to voluntary

export restraints (VER) from Japan anticipating further restriction. Japan continued with VER

even after the relaxation of quantitative restrictions by the USA government in 1985. In the post

oil crisis period, Japanese fuel efficient cars were high in demand in USA (Finance, &Report

(1982). Also, reluctance of the Big Three in the USA to produce smaller cars led to increase in

Import demand from Japan. Apart from this, the annual import limit had the perverse effect of

encouraging Japanese car companies to change the product mix of vehicles they shipped to the

USA, sending more upscale models, where the profits were greatest, and fewer smaller, cheaper

cars. In the early 1980s estimates say that the quota was transferring US$5 billion a year in

additional profits to Japanese automakers, who could sell their quota-limited cars at a premium.

Japanese car majors Toyota, Nissan, Honda, Etc jumped the quota barrier and invested in USA

for the domestic market also. The Protectionism in automobile market is also prevalent in Korea

Rep. Korean automobile Companies developed the sector through protection and currently

companies like Hyundai are heavily into export business. Similarly, Indian trade policy ensures

high barrier in importing vehicles to provide protection to domestic players who have started

exporting recently. In contrast to Japanese producers, companies from the USA were catering

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mainly to domestic market. In the post quota period, when Japanese players reduced prices in US

Market, domestic players were unable to compete. Due to very high level of output and

efficiency, Japanese players achieved significant economies of scale which was Unattainable for

US automobile giants. Today, this has led to complete restructuring of the industry where even

US majors have started investing in other countries to capture the Global market share. Germany,

Japan and Canada emerged as major exporters of Automobiles to USA (Warf, 1990). There is a

strategic difference between Japanese and German players also. Studying the trade data, it is

clear that Germany has Emerged as a major vehicles exporting country in 2005 overshooting

Japan. Japanese Companies are more interested to relocate their plants (and also bring fresh

investments) to Asia or other developing countries and use that base as exporting platforms. As a

result, export from Japan gets reduced. Germany has given thrust to mid and big size high Priced

vehicles in its export basket in contrast to Japan which also gives importance to Low value small

cars. The major European countries also import a lot and the import growth is quite significant

during 2000-2005. All these countries also import Auto components significantly. Quite

interestingly, Asian players such as Japan and Korea rep import very less amount of components

giving importance to domestic Component industry which is fairly protective.

2.5.3 Dynamics of Automotive Trade

The international trade in the automobile sector consists of trade in vehicles and components.

The sector consists of 82 six digit HS Codes. Components of automobile them into 7 broad

categories: rubber & glass components (Group I), iron & steel parts (Group II) , engine& parts

thereof (Group III), small parts such as Pulleys, gaskets, electrical fittings, etc. (Group IV), body

parts, bumpers, brakes, clutches and other safety components (Group V), seats, indicators,

bicycle and motor cycle Components (Group VI) and full vehicles (Group VII). Changing

pattern of export and Import of all these subgroups will be analyzed for each one of the selected

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countries. Top 5 exporting markets and importing sources are identified for each sub-group trade

in automotive Sector takes place either for market seeking activities or for using destination

country as offshore export platform. Trade in components is very much dependent on status of

Domestic component sector, protection and government regulation in component trading, Level

of technology absorption etc.

Thailand‟s automobile Sector is truly export oriented. It has developed domestic component

sector but still several critical components get imported. India‟s export orientation was started to

tackle the domestic overcapacity problem. Export orientation has come out as a second best

Strategy for many players and as a result much focus has not been given to make Component

sector internationally competitive. However, as export is increasing, importance is being given

on the component sector.

Today, China is more into component trading than trading of vehicles, On the Other hand

Indonesia remained as a small market. Most players concentrated on assembling activities as

economies of scale are not being achieved through manufacturing due to smaller size of the

market. Though Indonesia exports some vehicles, majority of companies play with „models‟ and

„makes‟ for the domestic market only. Component sector got developed through government

protection. However, technology absorption in the component sector is not sufficient and as a

result critical components are still imported (Yorgos, and Michell, 2007).

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 2.6 Automotive sector in Africa

Africa‟s automotive market is relatively small. In 2014, there were just over 42.5 million

registered vehicles in use in Africa continent of approximately one billion people. As a result, the

motorization rate on the continent is only 44 vehicles per 1, 000inhabitants. This is far below the

global average of 180 vehicles per 1 ,000 inhabitants, and lower than other developing regions

such as Latin America (176) and Developing Asia, Oceania and the Middle East . In 2015,

approximately 1.55 million new vehicles were soldering registered across Africa. South Africa,

Egypt, Algeria and Morocco all countries with established and rapidly developing automotive

industries together accounted for more than 80%of total new vehicle sales in 2015. Based on

recent sales trends, some sources estimate that Africa‟s passenger vehicle sales could reach up to

10 million units per annul within the next 15 years. Between 2005 and 2015, registrations and

sales of new vehicles (passenger and commercial combined) increased by a compound annual

growth rate CAGR of 3.6% on the continent. While coming from a low base and although

slightly higher than the global average of 3.5%, total sales growth in Africa was significantly

slower than other emerging regions such as Asia and the Middle East (8.9%), and Latin America

(4.2%).Both the lower motorization rate to date and new vehicle sales and registrations reflect

the still relatively low purchasing power of African consumers relative to their emerging market

peers. More importantly, the sizable latent potential of the continent‟s automotive market in the

long term. Due to limited disposable income and the high cost of new vehicles, second-hand

vehicles dominate the continent‟s automotive retail sector. These are mainly imported. Based on

in market research, Deloitte estimates that in the three African countries under review (Ethiopia,

Kenya, and Nigeria) at least 8 out of10 imported vehicles are used vehicles. This is a common

trend across the region given that Africa imports four times more automotive products than it

exports, with automotive imports worth US$48 billion in 2014 and exports worth only US$11

- 22 -
billion that year. Key sources of used vehicles are the United States (US), Europe and Japan. The

Middle East for example serves as a notable transit route for vehicles into East Africa. Imports of

vehicles grew rapidly from 2003 onwards, coinciding with GDP per capita growth and a growing

middle class on the continent (Thomas S, Karthi P., 2016)

Figure 2.2. Annual vehicles registration report (Thomas S, Karthi P. 2016).

South Africa dominates automotive trade on the continent, accounting for three-quarters of

Africa‟s automotive exports and15% of imports in 2014.6 South Africa, Egypt, Morocco, and

Algeria have sizable automotive assembly and manufacturing sectors. Despite these relatively

well established automotive hubs in South Africa and countries in North Africa, fewer than 900

000 vehicles were produced on the continent accounting for just over 0.9% of global production

in 2015.The rest of the continent is mainly are dominated automotive market. A common trend

thus is that a small share of new vehicles competes against a strong influx of second-hand

vehicle imports. Even though domestic vehicle production and assembly may have substantial

multiplier effects for African economies, and could act as a catalyst for industrialization and

economic diversification, this is at a lesser stage of development. As a result the sector has been

an attractive option for policymakers seeking to boost manufacturing employment, diversify

export revenue sources and ultimately industrialize their economies .It is observed that the

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present status of automobile industry in Ethiopia, the potential of the industry and the demand of

automobile vehicles including their spare parts. In Ethiopia many imported vehicles from

different parts of the world are in daily use. Maximum numbers of vehicles are of Toyota. Also

the spare parts are imported spending lot of money and time. The automotive assembly industries

in Ethiopia at present day‟s starts to emerge, it is therefore the assembled vehicles in Ethiopia are

insignificant quantity comparing to importing vehicles (Thomas S, Karthi P., 2016).

2.6.1 A comparative look at Ethiopia, Kenya and Nigeria

The three countries under review each have an existing automotive industry, although at various

stages of development, and Are all interested in further expanding the sector. Only Nigeria has a

concrete automotive industry policy in place to provide targeted support to the industry. Kenya

and Ethiopia currently rely on their respective industrial policies, with Kenya focusing on

improving the country‟s operating environment, and Ethiopia on building industrial capacity

through the country‟s state-owned enterprises and by promoting science and technology

education (Thomas S, Karthi P. 2016).

Table 2.2: Socioeconomic indicator

Indicator (unit) Ethiopia Kenya Nigeria Year

Population 90 44 180 2015

GDP per capital(US$) 702 1 432 2 758 2015

Urban population(%of total 19 25 47 2014

Population in the largest city(% of 17 33 15 2014

urban population)

Source: (Thomas S, Karthi P., 2016).

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Table 2.3: Auto indicator source

Indicator (unit) Ethiopia Kenya Nigeria Year

Fleet size 587,400 1300,000 3,590,000 2015

Sales of new vehicles (p.a.) 18000 19523 26400 2015

Commercial vehicles (% new sales) 16 86 29 2015

Passenger vehicles (% new sales) 84 14 71 2015

New vehicles (% total fleet) 15 20 10 2015

Second hand vehicles (% total fleet) 85 80 90 2015

Motorization rate (/1 000 people) 2 28 20 2014

Source:(Thomas S, Karthi P., 2016).

Table 2.4: Financial inclusion indicators

Indicator (unit) Ethiopia Kenya Nigeria Year

Private credit bureau coverage (% of adults) 0 14.3 6.7 2015

Borrowed from a financial institution (% age 15+) 7.4 14.9 5.3 2014

Account at financial institution (% age 15+) 21.8 55.2 44.2 2014

Depth of credit information (0=low, 8=high) 0 7 6 2015

Source: (Thomas S, Karthi P., 2016).

2.6.2 Automotive Industry in Ethiopia

Ethiopia has been among Africa‟s most impressive growth performers over the past decade

averaging 10.9% annual growth between 2004 and 2014. With a GDP of US$63 billion in 2015

it is the ninth largest economy in Africa and the third largest in Eastern Africa. After Nigeria, the

country is also home to the continent‟s second largest population of 90 million people in 2015

and a forecasted100 million in 2020.The government‟s economic development strategy is highly

regarded internationally. Premised on sound macroeconomic policies, the strategy focuses on

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economic diversification by promoting agriculture and industrial development, and the creation

of a business environment that is conducive to investment, supported by sizable infrastructure

development. Although seen as one of the world‟s poorest countries, with a per capital income of

only US$702 in 2015, Ethiopia arguably is a relatively untapped investment opportunity in

Eastern Africa especially in the manufacturing sector. Given the current limited disposable

income, Ethiopia‟s automotive market is dominated by second-hand imported vehicles –

particularly commercial vehicles. Commercial vehicles were Ethiopia‟s second most valuable

import overall in 2014, worth us$859 million. Commercial vehicles were also Ethiopia‟s highest

earning automotive export in 2014. The Ethiopian government is doing everything to transform

the country‟s economy from its current dependency on rain fed agriculture. Although the

country‟s economy is highly dependent on agriculture it is not farfetched to imagine an Ethiopian

economy that is based on manufacturing and modern heavy industries like mining. While the

mining Industry is still for most part in the preliminary stage of development the manufacturing

sector is off to a good start. One among the few home grown manufacturing sectors is the

huge Bishoftu Automotive Industry on the outskirts of Addis Ababa. The statistics indicated that

in 2015, only 160, 000 vehicles were in use in Ethiopia to imply a car per 500 inhabitants making

the country to have the lowest motorization rate globally. The commercial vehicles are estimated

to be 60, 000 while 95, 000 were passenger vehicles. The ministry of transport in Ethiopia

indicates that commercial vehicles are 16% while passenger vehicles take the lion‟s share of

84%. It‟s estimated that annually, 18,000 vehicles are brought into Ethiopia‟s market most of

which are second-hand vehicles. Passenger vehicle sales are mainly driven by government while

construction and agribusiness industries control the sale of new commercial vehicles. The

exportation and importation of used commercial vehicles are dominant in Ethiopia and in 2015

the imports were valued at $875 million making it the most valued overall import. The country

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mainly exports vehicles from the Gulf States via the Port of Djibouti since Ethiopia is a

landlocked country. The Automotive manufacturing company known as Bishoftu Automotive

Industry (BAI) contributed much revenue. The company specializes in overhauling, assembling,

localization and upgrading of buses, trucks, pickups, SUVs and military equipment. The

Ethiopian military runs it. The government lowers taxation for commercial vehicles instead of

personal cars, but the diplomats and foreign investors can import vehicles without incurring the

import duties. The engine size mainly dictates the affordability of a vehicle and with the taxation

policy of Ethiopia, the cost of an imported vehicle is likely to be three times the retail price of the

vehicle outside of the country. Since there‟s limited supply of vehicles and high import duties,

Ethiopia, there‟s a large market for second-hand vehicles in Ethiopia which is estimated to be

85% of vehicles. Toyotas dominate the market as they occupy 90% of the second-hand vehicles

sold in Ethiopia. It‟s estimated that between 5000 and 7000-second hand Toyota and 2000 new

Toyota are imported annually making Toyota in a position to control 65% of the total market.

It is observed that the present status of automobile industry in Ethiopia, the potential of the

industry and the demand of automobile vehicles including their spare parts. In Ethiopia many

imported vehicles from different parts of the world are in daily use. Maximum numbers of

vehicles are of Toyota. Also the spare parts are imported spending lot of money and time. The

automotive assembly industries in Ethiopia at present day‟s starts to emerge, it is therefore the

assembled vehicles in Ethiopia are insignificant quantity comparing to importing vehicles

(Thomas S, Karthi P., 2016).

2.6.2.1 Book price versus actual price in Ethiopia

In addition to the high tax rates that vehicles attract, the government‟s method of determining the

value of imported vehicles further increases the retail price. The base value of the vehicle is

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based on the government‟s own “blue book” which does not tend to be in line with market prices

globally. Furthermore, when varying prices for the same vehicle occur, the highest base value is

applied. The following examples illustrate the discrepancies between international market prices

and the retail prices in Ethiopia: However, Ethiopia‟s strong government support for

industrialization and the development of auxiliary industries coupled with a large cost

competitive labor pool, and sizable investments in infrastructure (both physical and economic)

could position the country favorably for automotive manufacturing in the long term to service

both the regional and domestic market with price competitive vehicles. To achieve this, clear

definitions of local content need to be developed. The country‟s high tax rate on vehicles reduces

the affordability of vehicles, especially given the low income of the population, and restrains the

vehicle retail market. To address this, industry stakeholders should support the establishment of

vehicle financing solutions, in order to encourage wider vehicle ownership. Taxes should be

revised to also take the age of vehicles into account in order to provide incentives for locally-

produced vehicles. To overcome the limited supply of foreign exchange available to automotive

importers and producers policy interventions and cooperation between government and private

sector players would be required. Ethiopia‟s lack of automotive policy presents a unique

opportunity to develop such a policy, with inputs from both the private and public sectors, to

ensure that a comprehensive, efficient policy aligned to the country‟s overall vision to

industrialize is implemented over the medium term. Similarly to the case of China in the early

1980s, Ethiopia‟s current small market size and motorization rate should not be seen as a

deterrent for market entry, but rather as a unique long-term opportunity for first movers in the

automotive sector (Thomas S, Karthi P., 2016).

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 Table 2.5: List of vehicle assembly companies

Assembler Location Annual brands Type of vehicle Owner ship

capacity
Yang fan Dukuem 1000 Lifan Passenger private
Eastern industry vehicles

Betret international Adama 1,200 BYD Auto Passenger private

vehicles
Mesfin industrial Mekelle 1,000 Geely Passenger private
Enginering vehicles

Nigma Motors and Gulel 300 Nigma(produce Daewoo, Passenger private

ZAZ Chevrolet under license vehicles

Bishftu Automotive Bishftu 4,000 Bishftu,FAW Passenger Public

industry(BAI) vehicles, LCV,
HCV
Belayab Adama 500 FAW HCV private
Engineering
Automotive AdisAbeba 600 IVECO HCV private
manufacturing
company(AMCE)
Source: In-market interviews and company website

Ethiopian investment commission annual report states that there is a need for investing and

strength assembly plant operations the local and foreign investors are applying to the commotion

to invest assembly plant and more than 100 investors got investment license up on their request

but the above table shows only seven organization are in operation of assembly of vehicle this

indicated as high demand of investment in vehicle assembly plant but the issues that pull back

the investors to go beyond having the investment license.(Ethiopian investment commission

2017).

(AMCE”The Italian car manufacturing company, FIAT (FabbricaItalianaAutomobili Torino)

introduced in Ethiopia truck model 621 and 634 which gradually Gained popularity in the

country. Apparently, encouraged by the promising result from the venture, FIAT decided to open

an assembly plant in Ethiopia in collaboration with the Ethiopian Government. Thus, AMCE was

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established in 1970, at the same place it is occupying now, Bole sub-city, Woreda 12 House No.

306 on a total area of 132,392 square meter land and currently employ about 150 workers.

The Automotive Manufacturing Co. of Ethiopia (AMCE) is today the biggest company in the

country in the Industrial vehicles‟ segment. AMCE is a share-holder company owned 70% by

IVECO, the international company of the FIAT group and 30% by the local Ministry of Industry

and Trade. Since its foundation, AMCE has concentrated its business in the transport sector. At

the end of the 70‟s AMCE was the sole company in Ethiopia to assemble heavy trucks. With its

huge premises the company was monopolist in the truck business and was also the leader in the

bus segment. After the opening of the market (customs duties on imported vehicles have been

dramatically reduced) AMCE is still keeping the leadership in the heavy trucks segment. Even

today where the competition is very high, IVECO products are still the most required. In

Ethiopian Market IVECO product is appreciated that are very reliable and are keeping a very

good value even after many years; this is also due the huge running park, of around 15.000 units

between trucks and buses and availability of spare parts all over the country”.

The company‟s main objectives are: -

 Importing IVECO vehicles completely built-up from Europe

 Assembling of commercial vehicles including buses of all ranges of FIAT brand,

 Manufacturing of bus bodies

 Importation of all materials, accessories, machine tools, pertaining to the assembling,

manufacturing and/or trading as specified above,

 Sale and trading of products and manufactures of the company

A part importation of vehicles, AMCE also provides genuine spare parts for all IVECO model

vehicles for service and maintenance according to its customers need and in order to give full

service and to avoid worries for its customers even after sales, and to let its customers business

- 30 -
goes smoothly without any shortage of parts during they have problems to their vehicles at any

time. And to avoid problem of getting genuine parts of IVECO outside Addis Ababa, AMCE has

spare part dealers throughout the country, so, the customers are able to buy from those of IVECO

Parts dealers. AMCE also strongly recommend for its customers not to forget using IVECO

original/genuine spare parts for long lasting and strong stability of their vehicles.

Workshop:

 AMCE workshop is always ready to serve its customers with its qualified and

competent mechanics at any time and any place of difficulties.

 The workshop is stand on 3,000 square meters and is equipped with modern machines

and well organized.

 Service, Maintenance, engine overhaul for all types of heavy duty trucks

 Drivers and mechanics training to familiarize with IVECO vehicles

 Well organized and equipped mobile workshop service

 What the customer has to pay for the service/maintenance is a lot fair and much

reasonable compared to the service we give.

The workshop is open for all IVECO vehicle owners who come on time of their warranty time
(AMCE, 2018)
There‟s need for the state to establish vehicle financing solutions and a new system of taxation

since the high taxation on vehicles based on engine size reduce the affordability. Currently,

Ethiopia produces 8000 vehicles annually for the home market. The government has strategic on

long-term goals of expanding the auto industry in Addis Ababa and Mekelle where China Lifan

Auto Group assembles the vehicle kits. Ethiopia wants to follow the trend of other countries in

Africa such as South Africa and Morocco which manufacture over 600, 000 and 200, 000

vehicles annually. Countries such as Kenya, Egypt, and Sudan also assemble vehicles. The

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growth of Ethiopia‟s economy has been witnessed in Africa with recent dam construction

enabling the nation to supply electricity to its citizens. Ethiopia‟s vision is to be the leading

manufacturing hub in Africa, and with the steps, they are taking, they are likely to achieve their

goals (AMCE, 2018).

It is observed that the present status of automobile industry in Ethiopia, the potential of the

industry and the demand of automobile vehicles including their spare parts. In Ethiopia many

imported vehicles from different parts of the world are in daily use. Maximum numbers of

vehicles are of Toyota. Also the spare parts are imported spending lot of money and time. The

main source of transport is for all the classes of people are taxis and buses in the country. There

are some private taxi's playing in almost all the cities like vans, three wheelers Bajaj and TVS

from India which is the cheapest mode of transport for the poor people. Buses, mini buses are

operated linking inter states or regions by fleet of transport agencies to transport the public. Also

many trucks and Lorries are being used to transport the goods of different categories. There is no

train facility in the country and no railway links to connect the cities of the country. People are

using flight connections of airlines to travel long distance in order to meet emergency needs.

Ethiopia land consist of high lands most of the part hills and uneven surface, where the Ethiopian

Highlands cover most areas of the country.

Buses, trucks with trolleys and minibuses including earth moving equipment, Luxury cars and

light duty vehicles all are imported as used vehicles from other countries. Now trend is picking

up to run motor bikes on the roads of all most all cities by some citizens. All these motor bikes

are getting imported from India (TVS& Bajaj) & China (Lifan). The export and import agencies,

Djibouti port authorities and Government duty all are added to the value of the products and the

traders demand more profits from all this products, all these are taxed to the customers and the

customers have to pay more money for the product (Aaron M., 2016).

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Figure 2.3. Intercity bus assembled by Bishoftu Automotive Industry

6.2.2.2 Economy and environment

Ethiopia‟s car ownership policy does not only have socially harmful effects but it is also

economically damaging. There are explicit and quantifiable monetary costs to private

households as well as to the government. To start with private costs, the excessive import taxes

do not only inflate prices of vehicles but also their spare parts. Needless to say that old cars

require frequent maintenance, which has often eaten into the meager household budget. In

another piece entitle Ethiopia‟s low wage curse, , Ethiopian households have tended to for non-

genuine spare parts because of their lower price, which could partly explain high fatalities on the

road, or even more frequent maintenance. Now about costs to the government and the wider

economy. The damaging economic impacts of old fleets on the wider economy cannot be

overemphasized. Let‟s start with cost of spare parts which would need to be imported and in

larger quantities than would be the case if the fleets have had lower average age. The extent to

which spare part imports has been a drain on the country‟s scarce foreign exchange is yet to be

studied. A comparative analysis with other countries would inevitably reveal some interesting

results. Importantly, fuel economy has been the main driving force shaping public policy on car

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ownership in the rest of the world. Fuel economy is a double-edged sword; it serves both

economic and environmental goals. In order to illustrate this, relevant data was brought together

from various sources and compiled in the table below. The upper part of the table compares two

Toyota Corolla models – one from 1986 and the other 2003 model, a relatively recent model by

Ethiopian standard. The data was obtained from Global Fuel Economy Initiative Study in

Ethiopia 2012.The 1986 and 2003 models would run with 12.2 and 15.3 km/liter respectively

that is a 3.1 km difference per liter! Similarly, there is a 39.1 grams CO2 emissions difference

per km between the old and the new models. The 2012 fuel economy report on Ethiopia stated

average annual mileage of passenger cars was 24,000, trucks and buses were 50,000km each. If

we apply the current US$0.67 (birr 18.77) per liter fuel cost in Ethiopia, then we establish there

would be US$267.2 saving by changing to the relatively recent model (Ayel,G. 2018)..

Table 2.6 : Global Fuel Economy Initiative Study in Ethiopia

The Deloitte Africa Automotive Insights report cited earlier stated that there were about 600,000

vehicles in Ethiopia and the bulk of them (85%) were classified as old fleets. If we gross up the

figures fuel economy data reported in the upper part of the table, then we get that total additional

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fuel cost saving would be about US$206 million and CO2 emission would be reduced by about

722,323 tons per year, about 7% of Ethiopia‟s total CO2 emission. The annual economic cost

reported in the table above is likely to be a small fraction of total costs, which should include

additional costs on spare part imports. Similarly, the CO2 emission is likely to be the minimum

expected (Ayel, 2018).

A. Import duty

Successive regimes in Ethiopia have made it their duty to deprive Ethiopians from owning a car.

This was accomplished by imposing an exorbitantly high car import duties and related car

ownership taxes. The combined effects of high import taxes and the unfavorable structure of

vehicle import market has been that cost of vehicles has always been prohibitively high in

Ethiopia (Ayel, 2018).

2.6.2.3 Vehicles in use

Ethiopia has the lowest motorization rate globally, with only two cars per 1 000 inhabitants in

2014.12 OICA estimates that in 2014 there were 150 000 vehicles in use in Ethiopia, of which 90

000were passenger vehicles and 60 000 were commercial vehicles. Between 2005 and 2014,

total vehicles in use grew at CAGR of 2%. The World Health Organization, for example,

estimates that there were 377, 943 registered vehicles in Ethiopia in 2010.

Ethiopia‟s Ministry of Transport reports that there are 587, 400 vehicles on the road, with an

annual growth rate of approximately 6%. Approximately 84% of the market is passenger

vehicles while commercial vehicles make up 16%.Second-hand vehicles dominate the market.

Approximately 85%of vehicles are second-hand imports, of which almost 90% are Toyota‟s.

These vehicles are imported primarily from the Gulf States, through the Port of Djibouti. The

vast majority of Ethiopia‟s vehicles are concentrated in Addis Ababa, while the number of

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vehicles in rural areas remains low. Points of entry to Ethiopia are well controlled, with the

exception of the area around the border with Somalia. The average age of Ethiopia‟s fleet is 15-

20 years. Vehicles are considered to be second-hand ten years after their production date,

compared to the global norm of four years after production (Thomas S, Karthi P., 2016).

2.6.2.4 Vehicle sales

There is almost no publicly available reliable data on vehicle Sales in Ethiopia. It is however

estimated that 18,000 vehicles are brought into Ethiopia each year. The majority of these are

second-hand vehicles. Each year, 2,000 new Toyota's and between 5000 and 7000 used Toyota s

are imported. In total, Toyota controls approximately 65% of the total market (new and second-

hand) due to its reputation as being reliable and inexpensive to maintain. The main drivers of

new commercial vehicle sales are construction, agribusiness and retail while passenger vehicle

sales are driven by government (including diplomatic corps) purchases. Due to low disposable

income, the absence of vehicle finance facilities and the ban of vehicle leasing schemes, personal

vehicles remain out of reach for the majority of the population. Limited availability of foreign

exchange to purchase imports also restrains access to vehicles. Vehicle affordability is further

locked up by prohibitively high vehicle taxes of sometimes more than 220% depending on

engine size. As taxes in Ethiopia are cumulative, excise tax is calculated on the customs duty,

surtax is charged on top of the excise tax, and customs duty and final VAT is calculated once the

surtax, excise tax and customs duty have been added. Imported vehicles may cost as much as

Three times the retail price of the vehicle outside of the country. Commercial vehicles, such as

pick-ups, vans and trucks have a lower tax rate than vehicles for personal use. Relative

disincentives exist is via personal vehicles compared to commercial vehicles. Diplomats and

foreign investors are allowed to import vehicles duty-free. The supply-depressing character of

foreign exchange shortages contributes to imbalances in the market and drives up the market

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price of vehicles, thus also having a negative impact on the affordability of vehicles in the

Ethiopian market (Thomas S, Karthi P., 2016).

Table 2.7: Tax rate for vehicle imports in Ethiopia, 2015

Description Customs Excise Sur Vat

duty tax tax

1.Cylinder capacity 1000-1300cc 35% 30% 10% 15%

2.Cylinder capacity 1301-1800cc 35% 60% 10% 15%

3.Cylinder capacity 1801-3000cc 35% 100% 10% 15%

4.Cylinder capacity greater than 300cc 35% 100% 10% 15%

5.c-cabin and single cab, carrying 35% 0 0% 15%

capacity not exceeding 1,500 kg

6.Public transport- seating capacity less 35% 0 0% 15%

than or equal 15 passengers

7.Public transport- seating capacity 10% 0 0% 15%

greater than 15 passengers

8.Truck 10% 0 0% 15%

9.SKD 5% Similar to 1–8, depending on

cylinder and seat capacity

10.Duty –free vehicles Free for any tax

Source: Ethiopia Revenue and Customs Authority, 2015

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2.6.2.5 Production and Assembly

From 1998, the Ethiopian Investment Commission reports that 73 domestic vehicle assembly

investment project and 31 foreign vehicle investment projects have been licensed, but only a few

are operational. The tax system in Ethiopia is dependent on engine size and not age or origin, and

as a result, it‟s cheaper to buy or import a vehicle with smaller engine compared to local

assembling. Some components of vehicles such as tyres are sourced from the country by some

assemblers, but the country doesn‟t have the defined local content requirement. The

government‟s provision of cost-competitive labor pool and investment may place the automotive

sector in a better position for development. There‟s need for the state to establish vehicle

financing solutions and a new system of taxation since the high taxations on vehicles based on

engine size reduce the affordability. Currently, Ethiopia produces 8000 vehicles annually for the

home market. The government has strategic on long-term goals of expanding the auto industry in

Addis Ababa and Mekelle where China Lifan Auto Group assembles the vehicle kits. Currently,

the state is working on the construction of an electric railway which will link the nation to

Djibouti, and they have partnered with Chinese firms to ensure the projects are finally achieved.

The car assemblers in Ethiopia are faced with many challenges since there‟s depreciation in

value of cars and finished imports. They also face competition from used imports like Toyota.

While actual production numbers are not available, a number of assemblers indicated that plants

were not operating at full capacity due to the current limited market size and inadequate access

to:

1) Foreign exchange to cover imports of Semi Knocked-Down (SKD) kits. During the past

decade, a number of leading international automotive companies have carried out market scoping

exercises to assess the viability of Ethiopia as an assembly hub. However, due to the limited

market size, large-scale investments by these automotive firms have not yet materialized.

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2) While SKD production currently takes place, companies such as BAI are looking to move to

Complete Knocked-Down (CKD) kits and possibly the full production of vehicles within the

next five years. BAI dominates the local production market, with a number of private sector

players perceiving it to be difficult to compete against the state-supported assemblers in the

current environment. BAI also benefits greatly from local government patronage of its products,

especially buses used for public transport schemes in Addis Ababa. Although a number of

assemblers source some components such as tyres locally, Ethiopia has no defined local content

requirement. A number of assemblers indicated that they are instructed that local content should

be approximately 30% in order to qualify for the 30% tax incentive associated with all local

Manufacturing, but that no written agreement exists between assemblers and the state.

Due to Ethiopia‟s tax system, which subjects vehicles to tax depending on their engine size

rather than age or origin, it is often cheaper to import a second-hand vehicle with a smaller

Engine size than it is to assemble a vehicle locally, despite import taxes on these vehicles.

Ethiopia is subject to foreign exchange controls and exporters are given preferential access to

foreign exchange. Insufficient availability of foreign exchange causes inefficiencies and planning

Challenges for importers of SKD kits, Fully Built-Up (FBU) units and parts (for assembly or

repair) and inhibits the growth of assembly and retail, market inhibits the growth of assembly

(Thomas S, Karthi P., 2016).

2.7 Policy environment

The Ethiopian government has been targeting both public and private investment into value-

added manufacturing, in an effort to diversify the economy away from agriculture. Ethiopia is

making a substantial effort to link into global value chains by targeting export-orientated

manufacturing and has attracted a number of investors into the garment and textile industry. This

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is seen to support the government‟s goal of becoming a middle income country by 2025.The

manufacturing sector has been selected as a high priority sector by government. As a result,

Ethiopia‟s economic policy, the second Growth and Transformation Plan (GTP II), aims to

support and grow the manufacturing contribution to GDP from 4% in2014 to 8% by 2020. This

is supported by attracting investment through industrial parks and extending incentives,

including tax incentives, to foreign investor. For example, new investors in the manufacturing

sector, including automotive, are exempt from paying income tax for a period of five years if

more than 50% of their products or services are exported, or if more than 75% of their product is

supplied to an exporter as a production input. Investors who only supply the local market or

export less than 50% of their product are tax exempt for two years. Income tax exemptions

ranging from one to ten years are applicable to investors in a range of prioritized industries and

sectors which include manufacturing but not specifically automotive or component

manufacturing. In fact, a dedicated automotive manufacturing policy is not in place. Given that

the current tax regime governing vehicle excise and surtax does not distinguish between

imported or locally assembled vehicles, levying of these taxes does not provide any incentive for

establishing local assembly or manufacturing but rather serves as a revenue generation

mechanism for the government. While most vehicle imports attract high tax rates, the Ethiopian

Government does not levy any export duty on vehicles. Duty-free exports and preferential

market access due to its membership of the Common Market for Eastern and Southern Africa

(COMESA) and duty-free access to the US under the African Growth and Opportunity Act

(AGOA), provide Ethiopia with access to a much larger market than its Domestic market. The

experiences of automotive hubs in emerging markets including Mexico, South Africa and

Thailand, indicate that Preferential or duty-free access to large export markets is beneficial for

the development of an export-oriented automotive industry. The Government‟s broad economic

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and industry specific policies are designed to increase the growth potential and international

competitiveness. In addition, Ethiopia‟s extensive minerals and energy resources ensure that

Ethiopia has relatively low utility charges for industrial users. Ethiopia‟s levels of educational

attainment are a source of competitive advantage and underpin the skills base of the workforce.

The Ethiopian Government is undertaking initiatives across the education spectrum to produce

employees who will better meet the changing needs of future employers. Ethiopia‟s welcoming

attitude to foreign investment, today, Invest Ethiopia, the Government‟s inward investment

agency, provides foreign firms with information in regard to potential investment opportunities

in Ethiopia. Invest Ethiopia can provide information on location, joint venture partners,

establishment costs and skills and taxation information. All of the motor vehicles operating in the

country, except relatively a few assembled in Bishoftu Automotive industry, Belayab, Lifan,

Abay, are imported from other developed countries like Japan, Germany, middle East and China.

(Thomas S, Karthi P., 2016).

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Table 2.8: comparative analysis of Vitiz and land Cruiser

Toyota Vitiz 2003 Toyota land Cruiser

Purchase price over seas US $1,500(from US $30,800(from

Dubai) Germany)

Base government price US $7,477 US $53,171

Old car depression of 30% US $5,234 US $37,219

CIF value US $5,934 US $39,219

Final exit price from custom(including all US $13,174 US $133,953

applicable taxes

Tax paid amount on Government base value US$7,249(122%) US $94,734(242)

Effective tax rate on actual paid CIF value 329% 289%

Source: (Deloitte Africa insights, 2016)

Despite being home to the continent‟s second largest population, the overall automotive market

size remains small in the short to medium term for current and prospective assemblers and

Producers. However, Ethiopia‟s strong government support for industrialization and the

development of auxiliary industries coupled with a large cost competitive labor pool, and sizable

investments in infrastructure (both physical and economic) could position the country favorably

for automotive manufacturing in the long term to service both the regional and domestic market

with price competitive vehicles. To achieve this, clear definitions of local content need to be

developed. The country‟s high tax rates on vehicles reduce the affordability of vehicles,

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especially given the low income of the population, and restrain the vehicle retail market. To

address this, industry stakeholders should support the establishment of vehicle financing

solutions, in order to encourage wider vehicle ownership. Taxes should be revised to also take

the age of vehicles into account in order to provide incentives for locally produced vehicles. To

overcome the limited supply of foreign exchange available to automotive importers and

producer‟s policy interventions and cooperation between government and private sector players

would be required. Ethiopia‟s lack of automotive policy presents a unique opportunity to develop

such a policy, with inputs from both the private and public sectors, to ensure that a

comprehensive, efficient policy aligned to the country‟s overall vision to industrialize is

implemented over the medium term. Similarly to the case of China in the early 1980s, Ethiopia‟s

current small market size and motorization rate should not be seen as a deterrent for market

entry, but rather as a unique long-term opportunity for first movers in the automotive sector.

(Thomas S, Karthi P., 2016).

2.8 Factors affecting locally assembled vehicles in Ethiopia

A) Government Regulation

Ethiopian automotive import market is open for all domestic investors interested in the business

and plan to penetrate the automotive market. Regarding the type of vehicles that can be imported

to the country, there is only one government regulation which prohibits dealers from selling to

government organization before being tested for five years in Ethiopian market. Otherwise the

private sector or the majority of the public is free to choose any brand they want to purchase.

Using the advantage of the free entry, the Korean cars are aggressively in passenger car market

and Chinese are aggressively marketing their trucks of heavy duty class. The government is also

under final stage of completing the study to introduce a regulation to ban importation of used

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cars which are older than five years from the recent year of production. This measure will help

the country in reducing foreign currency expenditure for spare parts and also to protect the

environment from pollution. Currently we are in an era where the world is thinking about

electric, hydrogen or hybrid cars in order to reduces the dependency on oil and also to reduce

environment pollution. Ethiopia should follow the move at least by preventing from being

dumping ground for older cars of Europe and Middle Eastern countries. Some positive

development is observed by the recently established car assembly plant, which produces Eco-

Friendly cars. The motor Vehicle certification system is easy as long as one fulfills the regulation

of Transport Authority. The inspection system is not developed and is below the standard

compared to international practices. This is one of the major reasons why the rate of traffic

accident in Ethiopia is high by the world standard. Nowadays the inspection system is getting

tougher and it is being sub contracted to dealer companies. However, the inspections system

needs to be properly followed and controlled routinely. Otherwise since the level of public

awareness is low, deployment of motor vehicle which not road are worthy will cause damage to

resources and human lives.

B) Price of fuel

The domestic sales of new motor vehicles are showing an increasing trend recently due to the

effect of fuel price. Since the new motor vehicles are better in fuel efficiency, the public

test/habit is shifting towards purchase of new cars than used cars especially in passenger vehicles

class.

C) Increase in household income

Previously most of the passenger cars were second hand cars which served for more than 10

years. Since recently brand new, latest version and luxury class cars are being seen. Even a kind

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competition on style and comfort of car that one is driving is observed in the upper & affluent

class of the society.

D) End User Preference

Ethiopian customer did not have a profound test and preference attributed to the customs policy

of the country and lack of choice. As a result the market was supply driven and influenced by

broker/mouth advertisement. In recent years end users are getting access and information and the

market is changing to be demand driven. End users are having their own criteria of selection

from price to style and/or dependability. In older days only the resale value and availability of

spare parts were the major decisions criteria.

E) Other factors affecting locally assembled vehicles in Ethiopia

The following are among other factors affecting locally assembled vehicles in Ethiopia.

• Fluctuating demand (seasonality of the demand)

• Tough terrain (road condition)

• Lack of capacity in repair and maintenance

• Lack of foreign currency for importation

• Lack of adequate bank finance

(Mebrhatu, M. 2018).

2.9 The manufacturing process

The manufacture of motor vehicles involves the manufacture and assembly of the final product

from a number of metallic, plastic and electrical components. A wide range of processes are

involved including metal cutting, pressing, polishing, grinding, welding, plating, & painting. The

vehicle industry produces many parts itself (e.g. by subsidiaries), while other parts are

purchased. Engines are cast from aluminum or iron, and further processed in engine plants.

Vehicle bodies are generally formed out of sheet steel, although there is a trend toward more

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plastic, reinforced fiberglass and aluminum parts in vehicle bodies. There are close linkages with

other metal industry sectors, particularly Foundries, Metal Surface Engineering, and Metal

Fabrication, as well as to the manufacture of plastic products, glass and textiles. It is common for

the Press Shop and Metal Surface Engineering (Plating Shop) to be located on the same site and

in these cases, it will be necessary to refer also to the relevant guidelines. The vehicle

manufacturing process is shown in the manufacture of motor vehicles involves the manufacture

and assembly of the final product from a number of metallic, plastic and electrical components.

A wide range of processes are involved including metal cutting, pressing, polishing, grinding,

welding, plating, & painting. The vehicle industry produces many parts itself (e.g. by

subsidiaries), while other parts are purchased. Engines are cast from aluminum or iron, and

further processed in engine plants. Vehicle bodies are generally formed out of sheet steel,

although there is a trend toward more plastic, reinforced fiberglass and aluminum parts in vehicle

bodies. There are close linkages with other metal industry sectors, particularly Foundries, Metal

Surface Engineering, and Metal Fabrication, as well as to the manufacture of plastic products,

glass and textiles. It is common for the Press Shop and Metal Surface Engineering (Plating Shop)

to be located on the same site and in these cases, it will be necessary to refer also to the relevant

guidelines. The vehicle manufacturing process consists of e.g. castings/forgings,

electrical/electronic equipment, wheels/tyres, instruments etc. Approximately 8,000 to 10,000

parts are assembled into approximately 100 major vehicle components. Assembly plants are

highly automated computer controlled assembly line operations. The unpainted vehicle body

(also known as the “body-in-white”) is assembled from formed body panels joined by welding,

glue and riveting. The vehicle passes by conveyor to the paint shop for: Pr-treatment (decreasing

and anti-corrosion inhibitor); Priming; Seam sealing and under body preparation; Application of

filler and finishing paint coats; Polishing, inspection and rectification; under sealing and wax

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injection. The Hard Trim is the fitting of items such as instrument panels, steering columns and

body glass. The Soft Trim is the fitting of seats, door pads and upholstery. The vehicle is then

fitted with the petrol tank, exhaust, and bumpers. At the same time, the engine is assembled. The

engine and tyres are then fitted and the vehicle is subjected to a rigorous inspection (EBRD Sub

Sector Environmental & Social Guideline, 2014).

Figure 2.4 the vehicle manufacturing process is shown in the diagram

Source :( EBRD Sub Sector Environmental & Social Guideline, 2014).

2.10 Automotive assembly

Automotive assembly would be divided into 6 major shops namely:

1. Engine shop- where the engine block casting is made according to dimensions and other

engine parts are assembled. Engine and transmission production requires components that are

resistant to oil and lubricants. Installation solutions have to be cost-effective and flexible because

each system presents a new challenge. It is important that the components are small because

space in the machines is limited.

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Figure 2.5 Engines assemble line Source :(Yash Desai,T. 2014)

2. Trans axle shop - Complete machining of gear blanks, shafts and assemble of gear box is

done here. The gear box is send to engine shop where it is fitted with engine and the unit is

called power train.

3. Press shop- the sheet metal operation is carried out where the different panels of the car are

made such as doors, pillars, hood, roof etc. automation in the automotive industry more apparent

than in the press shop. All manufacturing steps are fully automatic and the components have to

be resistant to vibration and shock ,safety modules provide the highest reliability and help to

ensure machine availability to reduce costly downtime, in the control panel a combination power

supplies offer the longest operating life and pee-failure warning, these coupled with 24 V DC

power distribution and protection systems allow failing components to be detected and changed

before causing a breakdown and subsequent loss in production.

4. Weld shop- Welding of these panels is done and the body made is called body in white

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5. Paint shop- as the name suggests, the painting of complete body is done, and painted body is

sent for final assembly.

6. TCF shop- Trim Chassis Final shop where the engine is assembled with the body along with

other parts such as wheels, wind shield, seats dashboard, ac, etc.

Testing - finally tests are carried out such as shower test, DLT test, drive test etc

and finally a car rolls out of the unit(Yash Desai,T. 2014).

2.10.1 Interior Auto parts and Accessories

The interior of vehicle may not strike you as the most essential aspect of your vehicle, but it is

the area of your vehicle you will spend the most time with (hopeful. Naturally, all the time you

spend driving is spent inside your car or truck. Therefore, it would be wise to keep the interior of

your automobile in a good state of repair. Doing so will only serve to make your driving

experience easier and more pleasant. There are many parts and accessories that play a role in the

upkeep of your car or truck‟s interior. These range from the aesthetic to the practical to the

essential and each serves a specific function as well as helps the inside of your vehicle look clean

and clutter free. New dash caps in can replace faded or cracked ones and give the interior a better

look. New seat heating pads can make your drive more comfortable. Parts like cup holders and

glove box liners serve practical functions, giving you a place to put your coffee and spare

change, and your registration and embarrassing CD's, respectively. Hazard light switch is

essential in the event of an emergency, and instrument panel light bulbs keep you aware of the

important information displayed by your vehicle. These are only a small sample of the interior

auto parts and accessories that you will find in the inside of your car or truck. Others include

headliners, floor mats, steering wheel, horns, switches, interior rear view mirrors, and parts for

your doors, windows, seats, console, and much more (Interior Parts & Accessories,2018)

Bishoftu Automotive Industry annual sale for four years is shown in the following table:

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Table 2.9: Annual sales Bishoftu Automotive Industry (2005-2008)

S.N Year Annual sales amount Remark

in ETB

1 2005/2013 2,055,155,859.86

2 2006/2014 2,121,929,308.92

3 2007/2015 2,155,875,474.48

4 2008/2016 2,255,700,187.38

5 2009/2017 1,844,010,222.43

Source: BAI

2.11 Research gap analysis vision

Bishoftu automotive industry assembles light vehicles, heavy duty commercial trucks and buses.

So in order to compete in global market level and satisfy local customers it must manufacture

high quality spare parts that are ready for assembly and high performance. Moreover; the

company assembles highly demanded city buses and commercial pickup vehicles. However

assembling long buses would have taken the company to higher performance and achievement,

furthermore conducting concrete study in manufacturing spare parts and assembling long bus

like selam bus, Ethio bus and overall vehicles is necessary to do so. Therefore, in order to satisfy

the customers demand and enhance the growth of the automotive vehicle assembly industry in

Ethiopia the company must necessarily fill the gaps there should be provide to customers in

prudent Quality, fair price, after sales service and spare availability.

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 CHAPTER THREE

METHODOLOGY
3.1 Introduction

Methodology is critical prefer to research design, data gathering technique and instrument, study

population, sampling and sampling technique to get appropriated justification related with each

formulation.

3.1.1 Research Design

The research uses descriptive research design in carrying out the study. Since the study is

comparative and directional the design is preferred because it will be concerned with answering

questions like who, how, what, which, when and how much. The first part of the study consisted

of a series of well-structured questionnaire for Bishoftu automotive industry workers and the

second part consisted of field observation in Bishoftu automotive industry. Both qualitative and

quantitative research is used.

3.1.1.1 Methodology

The research used both qualitative and quantitative methods and combination of primary

and secondary sources of data. The qualitative data supports the quantitative data analysis to

address the key research objectives, and results.

3.1.1.2 Study population

The target populations of this study are 160 employees of Bishoftu automotive industry and 40

customers of who buy the assembled vehicles of the organization.

3.1.2 Sample size and sample techniques

Random Sampling method was applied to determine the sample size of the study from the target

population. Based on this Simple and random sampling technique a representative of 75

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respondents were selected. The sample selected is in line with Roscoe‟s rule of thumb which

indicates that a minimum sample size of 30 respondents is appropriate for any business research

(Serkaran, 2000).

3.2 Data Sources

3.2.1 Primary Data source

First hand information that was obtained from the field using primary data sources like

questionnaires, observations , photographs and interviews for potential clients, Technical

managers, operational mangers and marketing and sells department. Primary source is useful

because it provides basic information about the vehicle assembly industry.

3.2.2 Secondary Data sources

Secondary sources are defined as analyses and interpretation of primary research. Secondary data

obtained from literature regarding automotive vehicle reports and the remaining data were

from the companies‟ manuals, reports and some management documents which were

included under the desk review .

3.3 Data Collection method

Data collection methods were focused on the followings basic techniques. Data were collected

using questionnaire. This secondary data sources could be internal and external data sources of

information that may cover wider in the study area.

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 3.3.1 Questionnaires

Questioner is the main research instrument that is used to gather primary data from the individual

respondents. Questioners were administrated in an interview form. It investigates for information

to answer research questions.

3.3.2 Document and review

Documents such as working manuals, automotive annuals reports, and finical reports,

manufacturing manual, brochures and books of the organization were reviewed and related the

research objectives.

3.4 Data Analysis

Data analysis was carried out using a tool of SPSS software version 21. The analyzed data are

summarized, described and then presented in the form of frequency and percentages. The

qualitative data analysis was used for triangulation of the quantitative data analysis. The

observation, and reports records were used to support the findings.

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 CHAPTER 4

DATA ANALYSIS AND INTERPRETATION

4.1Introduction

This chapter presents the response rate of the respondents which were chosen for the study

together with the demographic information of the sample. Both primary and secondary data

collected for the study was presented with the appropriate data presentation. The finding of the

study and their interpretations and discussions made based on the findings were also discussed in

this part.

4.1.1 Respondents Profile

Before going directly to discuss bout the result, it‟s better to introduce the respondents

understanding before directly going on to the result because understanding about respondent help

To estimate the accuracy of the information provided by them. In addition, it may give an idea

about how many respondents able to replay the questions forwarded with the acceptable degree

of reliability.

Table 4.1 Total numbers of questioners distributed returned and unreturned

QUESTIONERS NUMBER PERCENTAGE

Returned 72 96%

Unreturned 3 4%

Total distributed 75 100%

Source: own questionnaire (2018)

The above Table 4.1shows that the questionnaire was distributed to 75 customers of Bishoftu

automotive industry. Among those 96% were kindly enough to fill the questionnaires properly

and returned them up on time. The rest 4% were failed to complete and return the questionnaires.

- 54 -
All the returned questionnaires those 72 (96%) of the respondent were completed and consider

for the analysis purpose.

Table 4.2 General Information of Respondents

Description of respondents RESPONSE

NUMBER PERCENTAG

Gender Male 52 72.2 %

Female 20 27.8%

Total 72 100%

Age 18-28 Year 48 66.6%

29-39 year 14 19.4%

Above 39 10 13.8%

Total 72 100%

Education level Certificate 12 16.6%

Diploma 30 41.6%

Degree 20 27.8%

masters 10 13.9%

Total 72 100%

Nature of Full Time 55 76.4%

employment

Part Time 17 23.6%

Total 72 100%

Source: own Questionnaire (2018)

- 55 -
From the above table 4.2 show that 72.2% of Bishoftu automotive assembly male, the rest 27.8%

female, this shows majority of the respondents were male. When you see the age majority

respondents were 18-28 years, 66.6%, 19.4% were between 29-39 years and the rest above 39

were 13.8%. So, this implies better knowledge about the activity vehicle assembly of the

organization. With respect to education level 16.6% of the respondents were in certificate, 41.6%

Were in diploma, degree holders were 27.8% and13.9% of the respondent were master holders.

So, we can conclude that all the respondents are educated and more than certificate holder.

Therefore, this shows all respondents were expected to understand the questionnaire and respond

correctly up on limited time.

4.1.2 Questionnaire analysis

Table 4.3: Influential factor for automotive customer choice

Automotive customer choice Frequency Percent

Design 12 16.7%

Quality 52 72.2%

Fuel consumption 8 11.1%

Total 72 100.0%

Source: own Questionnaire (2018)

Design, quality and fuel consumption critical factors for automotive customer choice .customer

choice make examined internal and external factors they set provided the product or service.

From Design, quality and fuel consumption, quality and quantity of the product can be taken as

elements for automotive customer choice.

- 56 -
The above table 4.3 shows that 72.2% of the respondents said that the influential factor for

automotive customer choice Bishoftu automotive are quality, 16.7% the respondent said that the

influential factor for automotive customer choice Bishoftu automotive are Design and the rest

11.1% of the respondent said that the influential factor for automotive customer choice Bishoftu

automotive are Fuel consumption , so from this we can concluded that the influential factor for

automotive customer choice Bishoftu automotive are quality that assemble by the organization.

Table 4.4: competition between assembled vehicles with second hand vehicle

compare level of Frequency Percent

Strongly agree 31 43.1%

agree 24 33.3%

disagree 16 22.2%

Strongly disagree 0 0%

Total 71 98.6%

Missing 1 1.4%

Total 72 100.0%

Source: own Questionnaire (2018)

The above table 4 shows that 43.1% of the respondent said that level of vehicle assembly

compared to second hand imported vehicles are better strongly agree, 33.3% of the respondent

are level assembled is better second hand vehicles said agree, 22.2% of the respondent said that

level of assembled compare to second hand are in low level and there is no respondent said

Strongly disagree. So we can conclude that from the respondent vehicle assembly compared to

second hand imported vehicles are at high level.

- 57 -
Table 4.5: Market value of assemble vehicle

market value Frequency Percent

fair 47 65.3%

expensive 16 22.2%

cheap 9 12.5%

Total 72 100.0%

Source: own questionnaire (2018)

Based on the above table 6 65.3% of the respondent said that market price of automotive

industry is fair and 22.2% of the respondent said that the market price is expensive. From this we

can conclude that market price of the industry is fair price.

Table 4.6: Market access of locally assembled vehicle

Market access Frequency Percent

high 13 18.1%

Average 41 56.9%

Low 18 25.0%

Total 72 100.0%

Source: own Questionnaire (2018)

The above table 4.6 show that 56.9% of the respondent said that vehicle market effectiveness of

locally assembled vehicle is average, 25% of the respondent said that market effectiveness of

locally assembled vehicle is low and the remaining 18.1% of the respondent believe that market

effectiveness of locally assembled vehicle is high. Thus, we can conclude that market

effectiveness of locally assembled vehicle is at average condition.

- 58 -
Table 4.7: Profit of locally assemble vehicle

Profit rate Frequency Percent

High 38 52.8%

average 13 18.1%

low 19 26.4%

Total 70 97.2%

Missing 2 2.8%

Total 72 100.0%

Source: own Questionnaire (2018)

The primary purpose of any organization is to offer service to the society, besides that making a

profit is the major objective of the organization. In order to get profit it is a must make sales to

sustain its existence. The above table 4.7 shows that 52.8% the respondent said that theprofit of

locally assemble vehicle is high, 26.4% of the respondent said that profit of locally assemble

vehicle is low, 18.1% of the respondent said that profit of locally assemble vehicle is average and

the remaining 2 respondents doesn‟t reply the question. Thus from these we can conclude that

vehicle assembly is a vital role to enhance job opportunity.

- 59 -
Table 4.8: creating job opportunity for the citizens

job opportunity Frequency Percent

yes 38 52.8%

No 20 27.8%

uncertain 11 15.3%

Total 69 95.8%

Missing 3 4.2%

Total 72 100.0%

Source: own Questionnaire (2018)

The above table 4.8 shows 52.8% of the respondent said that job opportunity for the citizens

creates, 27.8% of the respondent said that creating job opportunity for the citizens is not created,

the remaining of 15.3% of the respondent said that creating job opportunity for the citizens

creates uncertain and 4.2 % of the respondent does not replay the question, however this doesn‟t

affect the result. So we can conclude that vehicle assembly is a significant impact in boosting

creating job opportunity for the citizens.

Table 4. 9: job satisfaction on the products of assembled vehicle product

Job satisfaction Frequency Percent

high 26 36.1%

medium 38 52.8%

low 8 11.1%

Total 72 100.0%

Source: own Questionnaire (2018)

Up on above table 4.9 52.8% in the respondent said that customer satisfaction on the products

of assembled vehicle product at medium level, 36.1% of the respondent said that customer

satisfaction on the products of assembled vehicle product is high and 11.1% of the respondent

- 60 -
said that customer satisfaction on the products of assembled vehicle product is low. So from this

we can conclude that customer satisfaction on the products of assembled vehicle product is in a

medium level.

Table 4.10: Technology transfer practices of assembled vehicle company

Technology transfer Frequency Percent

17 23.6%
low

28 38.9%
high

27 37.5%
average

72 100.0%
Total

Source: own Questionnaire (2018)

The above table 4.10 shows that 38.9% of the respondent said that technology transfer practices

of the organization is high , 37.5% of the respondent believes technology transfer practices of the

organization is of assembly plant is medium . The remaining 23.6% respondent said that

technology transfer practices of the organization are low. From this we can conclude that

technology transfer practices of the organization are in high level.

Table 4.11: Performance of vehicle assembly in terms of producing quality products

Level of quality Frequency Percent

very good 27 37.5%

Average 34 47.2%

Poor 11 15.3%

Total 72 100.0%

Source: own Questionnaire (2018)

- 61 -
The above table 4.11 shows that 47.2% the respondent said that performance of vehicle assembly

in terms of producing quality products of the industry is average performance, 37.5% of the

respondent said that performance of vehicle assembly in terms of producing quality products of

the industry is in very good condition and the remaining 15.3% of the respondent said that

performance of vehicle assembly in terms of producing quality products of the industry is poor.

Thus from the above table we can conclude that performance of vehicle assembly in terms of

producing quality products of the industry is in average condition.

Table 4.12: Main hindering the vehicle assembly industry

Hindering of the industry Frequency Percent

Attitude of the society towards second 35 48.6%

hand imported vehicles industry

high taxation 11 15.3%

Low governmental attention to 25 34.7%

industry

Total 71 98.6%

Missing 1 1.4%

Total 72 100.0%

Source: own Questionnaire (2018)

The above table 4.12clearly show that 48.6% of the respondent said that the main hindering the

vehicle assembly industry is Attitude of the society towards second hand imported vehicles,

34.7% of the respondent says the main hindering the vehicle assembly industry is Low

governmental attention to industry, the remaining 15.3% of the respondent said that the main

hindering the vehicle assembly industry is high taxation and 1% of the respondent missed the

- 62 -
question. Thus, from this we can conclude that is the major challenge for vehicle assembling

industry is Attitude of the society towards second hand imported vehicles.

Table 4.13: Challenges that are dragging the industry

Challenges of the industry Frequency Percent

Lack of foreign currency 25 34.7%

Brokers 37 51.4%

Custom duties 10 13.9%

Total 72 100.0%

Source: own Questionnaire (2018)

The above table4.13 shows that 51.4% of the respondent said that challenges that are dragging

the of vehicle assembly industry is brokers, 34.7% of the respondent said that challenges that are

dragging the of vehicle assembly industry is brokers and the remaining 13.9% of the respondent

assembly said that challenges that are dragging the of vehicle assembly industry is Custom duties

.Therefore, from this we can conclude up on the above table the main challenges that are

dragging the of vehicle assembly industry is brokers.

Table 4.14: critical factors impacting vehicle assembly industry

Impact of vehicle assembly industry Frequency Percent

Lack of skilled specialized man power 40 55.6%

investment to infrastructure 10 13.9%

Lack of raw material 15 20.8%

others 5 6.9%

Total 72 100.0%

Source: own Questionnaire (2018)

- 63 -
In any organization there are challenges which have a negative or positive impact for the

company. Some challenges gives opportunities to see beyond the challenge and give chance to

see things in detail and the overcome the challenge. The other can be the dangerous even for

sustainability of the company.

The above table 4.14 shows that 55.6% of the respondent said that factors negatively impact

vehicle assembly industry is lack of skilled specialized man power, 20 .83% of the respondent

said that lack of raw material, 13.9 of the respondent said that investment to infrastructure and

the remaining 6.94 of the respondent said that factors negatively impact vehicle assembly is

others beside of the alternative provided. So, from this we can conclude that from the above table

shows that lack of skilled specialized man power negatively impact vehicle assembly industry.

Table 4.15: Economic contribution of vehicle assembly to the industry

Economic contribution Frequency Percent

High 58 80.6%

Medium 8 11.1%

Low 6 8.3%

Total 72 100.0%

Source: own Questionnaire (2018)

The Ethiopian government support vehicle assembled industry by providing different incentives

to reduce the level of unemployment and poverty.

The above table4.15 clearly shows that 80.56% of the respondent said that economic

contribution of the vehicle assembly to country is highly significant, 11.1% of the respondent

said that is medium and the remaining 8.3% of the respondent said that low. Therefore, from this

we can conclude that the economic contribution of the vehicle assembly is vital to enhance our

economy.

- 64 -
Table 4.16: Major challenges that affect the vehicle assemble industry

challenges of the industry Frequency Percent

Government policy 12 16.7%

brokers 20 27.8%

Second hand imported vehicle 40 55.6%

Total 72 100.0%

Source: own Questionnaire (2018)

The above table4.16 tells us 55.6% of the respondent said that major challenge of the industry is

Second hand imported vehicle, 27.8%of the respondent believe that major challenge of the

industry is brokers and the remaining 16.7% of the respondent believe that that major challenge

of the industry is government policy to the industry. Therefore, from this we can conclude that

that major challenge of the industry Second hand imported vehicle.

Interview with the target respondents that the main reasons of domination of second hand

vehicles are Ease of maintenance Effective workshops, Resale Values, Availability of spare

parts, the interchangeability of spare parts.

Table 4.16: Positive impact of vehicle assembled industry

impact of the industry Frequency Percent

Creates Job opportunity 54 75%

promote local market size 10 13.9%

Promote domestic investment 8 11.1%

Total 72 100.0%

Source: own Questionnaire (2018)

- 65 -
The above table4.16 tells us75% of the respondent vehicle assembly industry creates Job

opportunity, 13.9% of the respondent said that vehicle assembly industry promotes local market

size and the remaining 11.1% of the respondent said that vehicle assembly industry promotes

domestic investment. Therefore, we can conclude that vehicle assembly industry is critically

important to enhance job opportunity to citizens.

Table 4.17: Contribution of vehicle assembly to automotive industry

Contribution to the industry Frequency Percent

High 68 94.4%

Medium 3 4.1%

Low 1 1.3%

Total 72 100.0%

Source: own Questionnaire (2018)

Ethiopia imports all of its automotive needs from abroad for the past decades. But nowSome

companies stars assembly of vehicles in Ethiopia.

The above table4.17 tells us 94.4% of the respondent said that contribution of vehicle assembly

for the development automotive sector the country high significant in boosting the sector, 4.1%

of the respondent said that contribution of vehicle assembly for the development automotive

sector is medium and the remaining 1.3% said that the contribution of the vehicle assembly to

automotive industry is low. Therefore, we can conclude that contribution of vehicle assembly for

the development automotive sector the country high significant in boosting the sector.

- 66 -
Table 4.18: Better performance of the industry

performance Frequency Percent

Quality 10 13.9 %

sales price 12 16.7 %

after sell service 42 58.3%

Design 8 11.1%

Total 72 100.0%

Source: own Questionnaire (2018)

The above table 4.18tells us 58.3% of the respondent said that the best performance of the

industry is after sell service, 16.7 % of the respondent said that the performance of the industry is

sales price of the organization, 13.9 % of the respondent said that the performance of the industry

is quality that assembled by the industry and the remaining 11.1% of the respondent said that the

performance of the industry is the design of the vehicle that manufacture by the company. Thus,

we can conclude that the best performance of the industry providing after sell service. In

automotive vehicle industry the availability of after sales service is mandatory to consistence the

company and to satisfy to their customers. Because the first question of the customer is after

sales service of the assembler or the dealer.

Table 4.19: Evaluate quality assurance

quality assurance Frequency Percent

High 8 11.1%

Medium 48 66.7 %

Low 16 22.2 %

Total 72 100.0%
Source: own Questionnaire (2018)

- 67 -
The above table 4.19 shows that66.7 % of the respondent said that quality assurance of the

industry is at medium level, 22.2 % of the respondent said that quality assurance of the industry

is at low level and the remaining 11.1% of the respondent said that quality assurance of the

industry is at high level. Thus, we can conclude that quality of assurance of the company

categorized in medium level.

Table 4.20: Spare availability of the organization

Spare availability Frequency Percent

High 3 4.2%

Medium 9 12.5%

Low 60 83.3%

Total 72 100.0%

Source: own Questionnaire (2018)

In automotive industry the availability of spare parts is mandatory for consistency of the

organization. The primary questions of vehicle customers the availability of spare parts in stock

of the assembler or the dealer of the vehicles.

From The above table 4.20 shows that83.3% of the respondent said that spare availability of the

organization is low, 12.5% % of the respondent said that spare availability of the organization is

medium and the remaining 4.2% the respondent said that spare availability of the highly

available. Therefore, we can conclude from the resonant is spare availability of the organization

is low.

- 68 -
 CHAPTER 5

CONCLUSION AND RECOMMENDATION

5.1 CONCLUSION

The development level of automotive industry in Ethiopia is at low level and we can conclude

that the development level of the industry compare to other developing countries is at infant

growth. Ethiopia is being a trucking country; it has high potential for automotive industry but not

well properly established. Strengthening automotive industry is one of the ways to increase the

growth of the national economy.

The contribution of vehicle assembly industry is highly importance for the national economy, job

opportunity, and technology transfer and employment creation as compared to the investment

outlay of the sector. Therefore, attention to local vehicle assembler in strengthening automotive

industry is must. Upgrading the capacity in maintenance and after sales servicing of automotive

is important. The finding indicates that, the vehicle assembly has a vital role in regard to profit,

economic role, employment opportunity, and technology transfer. Thus, vehicle assembly

industry is still shown a high potential for the future as the economy is at growth stage. The

reason for all major challenges on locally assembled vehicles are Brokers, attitude of the society

towards Second hand imported vehicle and Lack of skilled specialized man power though some

of the challenges that should be solved in the long run perspectives.

- 69 -
5.2 RECOMMENDATION

Based on the findings on the data analysis part the following suggestion and recommendations

are forwarded to the companies, policy makers and government bodies. Since the Ethiopian

economy is transforming from agriculture lead economy to industrial economy and vehicle

assembly sector is more related to automotive industry, the government‟s policy making body

should have to give due attention to the assembly of vehicles in difference ways. The Ministry of

industry and investment commission should encourage the vehicle assembly sector by giving

privileges and arranging market lines on the economy.

Depending on the finding of the researcher, the following suggestions are forwarded to vehicle

assembly industries:

 Formulation of automotive sub sector policy on assembled vehicles

 Ministry of industry should Encouraging the vehicle assembling industry to advance the

industry competitiveness in quality, price and services to sustain the industry.

 Use Technical collaboration approach for technology transfer and qualified skill man

power.

 Create awareness to the vehicle assembly partners to understand the economy scale and

big advantage on the vehicle assembly industry.

 Inviting brokers in promotion and sales activity of the product.

 There must be a serious follow up to create commitment with government on identifying

the demand of government program and finding the competitiveness of the products of

the industry to support automotive industry.

 By offering competitive quality assembled products putting a goal to change the mindset

of the public that has seen inclined to second hand import vehicles.

 Providing timely genuine spare parts to the vehicles.

- 70 -
Finally, the researcher wants to recommend to those researchers who have an interest on study in

assembly industry to perform a study on the role and challenges of vehicle assembly, because the

industry is infant to our country and it requires research and investigation to be strong and to

enhance economic contribution for a nation.

- 71 -
REFERENCES

Aaron M. (2016): Ethiopia to expand tiny car assembly business in industrial drive.

AMCE (2018): Automotive Manufacturing Company of Ethiopia annual report.

Ayel, G. (2018):Economic Commentary: Punitive Import Tax On Cars Deprive Ethiopians A

Driving Seat, Undeservedly, And Hurt The Countryavailable from<http://addisstandard.

com/economic-commentary-punitive-import-tax-on-cars-deprive-ethiopians>.

Bishoftu Automotive Engineering Industryavailable from<www.metec.gov.et>.

EBRD Sub Sector Environmental & Social Guideline. (2014): available

From<https://www.ebrd.com/documents/environment/motor-vehicle>.

Ethiopian investment commission. (2017):available from<http://www.investethiopia.gov.et>.

Felix, K. (2017): Trends of world automotive industryavailable from<https://eu-

smartcities.eu/sites/default/files>.

Interior Parts & Accessories. (2018): available from<https://www.1aauto.com/interior-parts-and-

accessories>.

Janosik, R. (1987): available from<https://legal-dictionary.thefreedictionary.com/regulation>.

Mc manufacturing consulting Magazine Feb.2017

Mebrhatu, M. (2018): The Current Scenario of Automotive Industry In

Ethiopia: International Journal of Engineering, Science and Mathematics Vol. 8 Issue 1

Mulu,G.(2013):Industrial policy and development in Ethiopia available from<

https://www.industryweek.com/global-economy>.

Nicolas, J. (1769): Automotive Historyavailable from<https://sdautomuseum.org>.

Serkaran (2000): the rule of thumb sampling technique.

i
Technology transfer Wikipedia. (2019):available

from<https://en.wikipedia.org/wiki/Technology_transfer>.

Thomas S. (Dr.), Karthi P. (2016): Deloitte Africa Automotive Insights.

Yash Desai, T. (2014): available from<https://www.quora.com/What-are-the-major-steps-of-car-

manufacturing>.

Yorgos ,P. and Michelle ,H.(2007):The Automotive Industry: Economic Impact And Location

Issues

ii
Appendix -I

Questionnaires guide for supervisor, Technical managers, sale managers, and operational

employees.

Dear respondent

My name is Million kilos. I am currently carrying out a study for the purpose of writing a thesis

as a requirement for the award of masters of Industrial management in Addis Ababa science and

Technology University. The study is on the role and challenges of vehicle assembly in Ethiopia:

in case of Bishoftu automotive industry .You have been selected to participate in this study due

to the importance of your information in the study. The information you provide will be used

only for the purpose of this study and you will be treated with confidentiality. Please circle

answers all your questions truthfully.

If you have any queries, please do not hesitate to contact me and I am available as per your

convenience at (TEL. 0912270235)

(E.MAIL= milionbahta@gmail.com)

Thank you for your valuable time.

iii
Part I

Profile of the Respondent

You are required to provide X signs where required and give specific answer on space provided

1. What is your gender?

M F

2. What is your age?

18-28yr 29-39yrs above 39 yrs

3 What is your marital status?

Married Single Divorced widowed separated

4. Educational back ground of workers: - Elementary school High school

Certificate Diploma B Sc/BA degree above B Sc/BA

5. Nature of employment.

Full- time Part–time

iv
Part II

QUETIONERIES

1. What is the influential factor for automotive customer choice in your company?

a) quality b) design c) fuel consumption d) cost

2. Do you agree that assembled vehicles better than secondhand imported vehicle?

a) Strongly agree b) agree c) disagree d) Strongly disagree

3. What is your point of view regarding the market price of assemble vehicle?

a) expensive b) fair c) cheap

4. How do see market access of locally assembled vehicle?

a) high b) average c) low

5.How do you rate the locally assemble vehicle in terms of profit?

a) high b) average c) low

6. Do you believe that the vehicle assembly creating job opportunity for the citizens?

a) Yes b) No c ) uncertain

7. How do see the job satisfaction on the products of your assembled product?

a) high b ) medium c) low

8. How do you see technology transfer practices in your assembled vehicle company?

a) High b) medium c) low

v
9. How do you evaluate performance of vehicle assembly in terms of producing quality

products?

a) Very good b) Average c) poor

10. Which factor is the main hindering the vehicle assembly industry?

a) Attitude of the society towards second hand imported vehicles b) high taxation

c) Low governmental attention to industry

11. Besides the above question what other challenges that are dragging the industry?

a) Lack of foreign currency b) Brokers c) Custom duties

12. What is the critical factor impacting vehicle assembly industry?

a) Lack of skilled specialized man power b) Lack of raw material c) investment to

infrastructure d) others

13 How do you see the economic contribution of vehicle assembly to the industry?

a) high b) medium c) low

14. Choose the major challenges that affect the vehicle assemble industry from the given

alternatives:

a) Government policy b) Brokers c) Second hand imported vehicle

15. What are critical factors which are positively impacting by the vehicle assemble industry?

vi
 a) Creates Job opportunity b) promote local market size c) promote domestic

investment

16. How do you see the contribution of vehicle assembly to the growth of automotive

industry?

a) High b) Medium c) Low

17. What is better performance of bishoftu automotive industry?

a) Quality b) Design c) after sell service d) sales price

18. How do you evaluate quality assurance of your organization?

a) High b) medium c) low

19) How do you see spare availability of your organization?

a) High b) medium c) low

If you have further comments or suggestions please write on the space given below

vii
Appendix- II: Some of the products manufactured and transferred to customer

Source (BAI)

viii
Appendix- III: Truck Assembly Line

Source (BAI)

ix
x