Africa is giving India's two-wheeler makers sleepless nights

Exports of two-wheelers shrank 12.45% in the first half of current fiscal. at 11.83 lakh units compared to 13.51 lakh units in the same period of last year. While three-wheelers were hit more severely and dropped 39.32%, at 1.59 lakh units.

Saji John, Research Analyst of Geojit BNP Paribas said, “The Indian two-wheeler and three-wheeler auto segment derives a large chunk of its export revenue from African countries, especially Nigeria. " Photo: Youtube

Even as auto sector is heaving a sigh of relief with 20% jump in domestic sales last month, pain point in the export market seems to be developing.

Exports of two- and three-wheelers have been on the decline since the beginning of this fiscal. The situation begets more attention as two-wheeler alone accounts for 80% of the market.

Exports of two-wheelers shrank 12.45% in the first half of current fiscal. at 11.83 lakh units compared to 13.51 lakh units in the same period of last year. While three-wheelers were hit more severely and dropped 39.32%, at 1.59 lakh units.

Led by above two, overall exports by auto companies fell by nearly 11%, at 17.57 lakh units versus 19.67 lakh units in corresponding first half of last year.

Saji John, Research Analyst of Geojit BNP Paribas said, “The Indian two-wheeler and three-wheeler auto segment derives a large chunk of its export revenue from African countries, especially Nigeria. "

Presently the African markets account for around 35% of exports from Bajaj Auto while TVS Motors export, chiefly to Nigeria and Kenya.

John explained,"Over the last 2-3 quarters, there has been a considerable decline in the exports of two-wheelers and three-wheelers to Africa, owing to a fall in crude oil prices and devaluation of key African currencies."

The current situation in Africa has made every analyst wonder if whether they have ran out of fuel.

A report from Harvard Business Review stated that, the country's real GDP grew at an average of 3.3% a year between 2010 and 2015, considerably slower than the 5.4% from 2000 to 2010.

"Stability crude prices and gains in African currency values and consequent lowering of inflation are key to a sustained rise in two-wheeler and three-wheeler exports from India," explained John.

"Inflationary pressures have dented the purchasing power of the countries and the situation does not appear to be a short-term phenomenon," John said.

Inflation Rate in South Africa averaged 9.27% from 1968 until 2016, reaching an all time high of 20.90% in January of 1986 and a record low of 0.20 percent in January of 2004, as per Trading Economics data.

Going ahead, regulatory measures is another reason why these two segments' are affected.

Sri Lanka increased the customs, import and excise duty which was, as per various analysts, a barrier for Indian auto companies such as Bajaj Auto and TVS Motors.

As per the new revision in Sri Lanka, motorcycle segment saw rise in taxes by 100% from the current 61%.

Sri Lanka contributes 30% of the Bajaj Auto's exports.