Zambia waives taxes on electric vehicles

From the newsletter

Yesterday, Zambia announced it is waiving all import taxes except VAT & is doing away with VAT for local EV manufacturing. It joins Zimbabwe, which last week reduced its EV import taxes. Zambia in the last month attracted several deals in its mineral sector by partnering with Morocco & DR Congo to establish an EV value chain.

• The government plans to lead by example and has pledged to transition at least 50% of its fleet to electric vehicles.

• Zambia is richly endowed with critical minerals—copper, lithium, cobalt, manganese, and nickel—essential for EV battery production, and a plan is underway to partner with DR Congo to establish an EV battery plant.

More details

• Zambia has emerged as a key player in EV manufacturing, largely due to its rich mineral deposits, which place it at the centre of the EV transition. This has attracted the attention of China, Morocco, and the USA, who are partnering with Zambia to leverage their respective strengths. These countries bring expertise in vehicle manufacturing, while Zambia contributes its valuable mineral resources.

• Interestingly, despite its potential role in the EV space, the market for EVs within Zambia itself remains in its infancy. While policies support EV importation and manufacturing, consumer incentives are lacking. Such incentives are crucial for market growth, especially given the high cost of EVs. African countries that are making progress in EV adoption, like Morocco, Tunisia, and Egypt, have not only reduced taxes but also provided incentives for EV buyers through tax rebates and incentives.

• Its neighbour, Zimbabwe, has also shown a commitment to EVs by lowering import duties. Both countries are embracing the shift towards electric mobility, but challenges persist. Charging infrastructure remains underdeveloped, government policies to support the sector are limited, and the market hasn't attracted many e-mobility start-ups, though progress is being made, particularly in the electric motorcycle space.

• Zambia's abundant minerals present a significant opportunity, but it lacks the industries and technologies to process them locally. Building this capacity from scratch could be costly. However, Zambia could strike deals with China and the USA to secure investment and technology transfer in exchange for access to its minerals. This would allow them to obtain EV components at lower prices, supporting their local manufacturing ambitions.

• For Zambia to succeed in the EV industry, policy harmonisation, regional financing, and innovation are crucial to enhancing its competitiveness in the global e-mobility sector. Collaborative efforts under the African Continental Free Trade Area (AfCFTA) are expected to boost intra-African trade in automotive components, creating opportunities for countries manufacturing them locally. Zambia can explore this opportunity to ensure they can enjoy economies of scale.

Our take

• Zambia's decision to waive taxes on electric vehicles is a progressive step. Lowering import costs could make EVs more affordable, potentially stimulating demand and driving market growth. However, this strategy presents a complex challenge for a country like Zambia, rich in minerals crucial for EV battery production.

• While attracting EV imports is beneficial in the short term, it could hinder the development of local manufacturing capabilities. A balance must be struck between promoting EV adoption and fostering a domestic EV industry. Local manufacturing can grow if the government provides incentives for manufacturers and subsidies for consumers to bridge the affordability gap.

• Above all, the success of the EV market will depend on the government's willingness to implement comprehensive policies. The commitment to converting its fleet to 50% EVs sends a strong signal and could stimulate the market. However, further policies are needed to streamline the sector and attract investment. Moreover, the government needs to extend its policy to include EV infrastructure development, ensuring its affordability and accessibility.