In the eastern part of Maseru visitors immediately notice the wide diversity of car brands on the busy roads. The names of the vehicles are different to what we are used to in SA, even where in design they are similar. Some have not even removed the name of the Japanese dealership where the car was originally bought.
The busy A2 roadway past upper Thamae towards Berea Hills is stacked end-to-end with second-hand car dealerships, along with mechanics, used tyre and parts merchants. Judging not only from the wide model range on the roads but also the “dead range” piled up in scrap heaps or under repair, this is agglomeration in action, with many entrenched economic actors with an interest in the trade.
I was reminded of Nobel prize-winning economist George Akerlof’s seminal 1970 paper on information asymmetries. Akerlof considered quality and uncertainty in the market for used cars, or “lemons”, as he called the really bad ones. Because of “sellers having more knowledge about the quality of a car than the buyers”, sellers had an incentive to be dishonest not just about the quality of the vehicle, he said, but also any other information relevant to the buyer’s decision, such as accidents and repairs.
This informational challenge on second-hand cars is ironically the reason there is a surplus of vehicles in Lesotho in the first place. Japanese authorities have an auto registration and licensing system that disincentivises owning a car beyond the three-year mark. For safety and other reasons the Japanese government has a costly compulsory insurance inspection that used cars undergo every two years, while new cars are exempt.
Cars that do not pass the rigours of the inspection must choose between expensive repairs or selling the vehicle. Thus, a glut of used cars is created that are dispatched to Africa, among other markets, while creating steady demand for new vehicles in the Japanese market.
According to a 2021 study by Japanese economist Yutaka Asazuma, used car exports from Japan to Africa grew from fewer than 50,000 units in 2001 to nearly 400,000 units by 2018, largely for this reason.
While SA has a total ban on the import for resale of used vehicles as part of its import control policy, countries such as Lesotho, Namibia and Botswana, with which we share an external tariff regime, allow for their importation. It remains a contentious issue.
The situation is similar regarding footwear and apparel, where bales of imported used clothing continue to flood the streets of towns and cities on our continent, and often end up clogging its landfills and rivers. While recognising that a total import ban may face resistance many of authorities are loath to confront, something can and ought to be done.
An age limit should be imposed on imported used vehicles, as Botswana and Namibia have done, along with considering deeper restrictions on the importation of used parts (especially tyres) whose quality is difficult to ascertain. This could provide a fillip to component manufacturing throughout the Southern African Customs Union.
To overcome informational challenges for consumers and regulators alike, co-operation between exporter countries and regulators is required in importing areas, to ensure integration of auto registration systems. Further forms of taxation on entry could also be explored, to penalise imported vehicles whose age, emissions and other information cannot be ascertained, for instance. Newer imported vehicles where original equipment manufacturer assurance can be furnished, would be exempted.
There is also a need for region-wide incentives to expand auto scrap processing capabilities to deal with the environmental and other concerns associated with the unregulated disposal of imported used vehicles that are beyond their useful product life.
The countries of the region need to start discussions on this issue. That chat could benefit from visiting Maseru and its “lemons”.
• Cawe is chief commissioner at the International Trade Administration Commission. He writes in his personal capacity.
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