Before I started writing this post I took a look at listed car prices on popular e-commerce sites hoping that my eyes were lying to me the previous 200 times I had checked. But no luck, car prices are at levels that leave many Ghanaians befuddled. A newly imported 2010 Toyota Yaris, a dependable compact car with good fuel economy but by no means a luxury car, sells for GH¢93,000. A newly imported 2008 Toyota Corolla sells for GH¢85,000. A 2013 Honda Fit sells for GH¢135,000! What is going on?
To put things in perspective a financial educator, Desmond Bredu, calculated that in order to qualify for a 5-year loan of GH¢100,000 from the bank at an interest rate of 32%/year, you will need to be earning a net salary of about GH¢7,500. Data from the Ghana Earnings and Savings Survey (GESS 1) revealed that GH¢7,500 would put you in the top 30% of income earners. This GH¢7,500 is three times the average salary of a public sector worker. And let’s keep in mind that we are not talking about luxury sedans or SUV money, we are talking about how rich you need to be just to own a compact car. It’s no wonder the price of Ghana-used cars have shot up as people hold on to their cars with care, knowing they will not be able to afford new ones.
So how did we get here? Why are cars outrageously expensive? In this post I will discuss the factors that led to this current price explosion.
Depreciating Cedi
The first obvious culprit of the explosion in car prices is the depreciation of the Ghana cedi against major trading currencies. From the beginning of 2020 till March 2024, the cedi has lost 55% of its value against the US dollar. This means if you want a dollar today, you will need 110% more cedis than you would have needed in January 2020. So a car that would have cost GH¢30,000 in 2020 would cost GH¢63,000 today due to cedi depreciation alone. Given that most people’s incomes have not kept up with the strong dollar, cars are more expensive now in both absolute terms and also relative to their income.
Global Car Prices
Car prices around the globe have been on a tear since COVID-19 disrupted supply chains. A report by Business Insider revealed that while $10,000 could have got you a three-year old Chevrolet Spark in 2019, but that budget would only get you a nine-year old model in 2023. In December 2023, the average price of a new car in the US was $48,759 according to Bloomberg, this was 30% higher than the average price in 2023. Using this data point, we can roughly estimate that the price of a car imported to Ghana that cost $30,000 in 2020 would cost $39,000 today. Using the exchange rates of GH¢5.7 to the dollar in January 2020 and GH¢12.75/$1 in March 2024, a GH¢171,000 vehicle in 2020 would be GH¢497,250 today before import duty. And that leads us to our next issue.
Import Duties
In April 2019 the government introduced a 50% reduction in the benchmark values for all imports except vehicles. Vehicles received a 30% reduction. Benchmark values are simply standard prices on which import duties are calculated. Therefore this reduction was essentially a discount on imported items. In 2022, government removed the benchmark value discount citing a loss of GH¢9 billion in lost import tax revenue. The removal of these benchmark discounts in conjunction with the cedi depreciation saw a hike in import duties that not only affected vehicle prices but a whole range of consumer products. In dollar terms, a vehicle that would’ve had import duties assessed on a value of $7,000 in 2020, will be assessed on a value of $10,000 in 2024.
Lack of faith in other stores of value
One of the saddest reasons why car prices are out of control is that many Ghanaians have lost faith in traditional investments such as bonds, treasury bills, and mutual funds as a store of value. People who bought cars in 2019 are witnessing the cedi value of those cars appreciate even after 5 years of use. Meanwhile, domestic restructuring of bonds, COCOBOD bills, and domestic dollar bonds have left a sour taste in the mouth of many investors. Some investors have expressed frustration about mutual funds being unable to honour withdrawal requests for several months. This has led them to use their scarce resources to purchase cars at any price, believing that the resale value of these cars will hold up better than cedi investments.
These four major factors have combined to make the prices of vehicles in Ghana reach eye-popping levels. Car ownership is social signifier of an aspiring middle-class household, and it is increasingly becoming an exclusive privilege.