South Africa, Morocco and Algeria traditionally dominate Africa's new tractor sales market, accounting for a large portion of the continent's total sales per year; however, more than 80% of these are light machinery of less than 100 horsepower and are two-wheel drive. In another example, Algeria counted 140 tractors per 100sq km of arable land in 2008 compared with 271 in the US and fewer than seven in Nigeria.
Three major dynamics would need to materialise in order for agricultural machinery sales to pick up across most of Africa over the coming years. These are listed below.
- Higher farm incomes, mainly resulting from high commodities prices and good harvests.
- Positive financial conditions, such as low real interest rates and better access to credit.
- Favourable exchange rates as African nations continue to rely on imports of agricultural equipment.
On the basis of these criteria, we expect subdued agricultural equipment sales growth across Africa over the coming quarters as weakening growth in farm incomes (as regional food prices remain broadly subdued) are compounded a gradual winding down of monetary easing (see 'Fitch Solutions: Sub-Saharan Africa Key Themes For 2019’, December 18 2018). One exception to this has been South Africa where a weakening rand has increased export competitiveness and has to an extent mitigated falling regional grain prices. However, the weakened incomes have led to a severe decline in sales, with tractor sales declining by 19% year-on-year in the year up to March 2019 and combine sales falling by 22% over that time. According to the South African Machinery Association, the current situation regarding summer crop prospects, particularly in the west of the country, is precarious. In the 2019 calendar year, indications are that sales will be between 5-10% below the 6,700 units sold last year.
Although such financing will remain difficult to acquire, we expect overall SSA growth to continue to accelerate, to 3.3% in 2019 - up from 2.6% in 2018 and a multi-year low of 1.5% in 2016 and the strongest growth seen since 2014. Growth will be driven by East Africa in particular, with real GDP in the East and Central Africa sub-region set to expand by an average of 5.6% in 2019, up from 4.8% in 2018. This Growth in East African Community member economies (Kenya, Rwanda, Tanzania and Uganda) will remain healthy as the implementation of major projects aimed at improving the country’s infrastructure drives growth in fixed investment. However, expansion in major economies, including South Africa and Nigeria, is likely to prove disappointing. In particular, growth in Western and Southern Africa will also be sustained by a modest rebound in Nigeria and South Africa respectively, but in both cases growth will remain well below historical levels, reflecting ongoing policy uncertainty and fiscal constraints (see 'South African Economic Growth To Remain Weak Over The Long Term', March 29).
AGCO announced in early 2016 that they are planning on increasing sales in Africa by 20% annually over the coming years after adding new capacity on the continent during that time. Specifically, the company built new facilities in South Africa, Algeria and Zambia. AGCO's key focus in terms of sales will be the DRC and Egypt. Ethiopia - which is slowly trying to modernise its farming system through the use of exchanges and subsidies - is also a target market for the company. The company reiterated its commitment to Africa in its 2018 annual report, stating that it is establishing a greater manufacturing and marketing presence and expanding its use of component suppliers.
Read the Full article on the link on top.
