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The rapid industrialisation and modernisation currently sweeping through many African countries has resulted in an increased demand for capital goods such as machinery, lubricants, spare parts, ball bearings and other mechanical goods and accessories. The market for automobile spare parts, in particular, has been an attractive sector for UAE-based enterprises, who have emerged as the leading supplier of these goods to many countries in East, Central and Southern Africa.
The UAE has long been known as a major supplier of automobile spare parts both within the Gulf region as well as for CIS, Indian sub-continent and Africa. After witnessing a depression recently, the automobile and spare parts industry in the country has once gain recovered to its optimum level. However, the increase in demand for quality spare parts has encouraged parallel imports into the country forcing leading automobile distributors and spare part companies to start a full-blooded campaign against illegal importers who operate from neighbouring countries, particularly across the border in Oman. As a result of illegal imports into the UAE, the major players in the local market have combined together to curb the inflow of excessive supply of spare parts through illegal channels.
It has been estimated that almost 30 per cent of the demand for auto spare parts is being fed by parallel imports from neighbouring countries. These pirated goods are preferred by buyers as they are offered at heavily discounted prices. These illegal operators are able to beat the local agents and distributors as they survive on low profit margins and high volumes. They also do not pass on import tariffs and other additional expenses on to their customers in order to maintain their low prices.
The rise of a sizable second-hand spare parts market has posed a further threat to UAE-based spare parts dealers. This lucrative market has registered a substantial growth in the last five years mainly because of the rising demand from East African countries and CIS. Though not all second-hand spare parts sellers in Dubai or Sharjah can provide the full range of used parts for all car models, but these outlets are capable of providing nearly 90 per cent of such parts. In fact, some of the second-hand spare parts outlets in Sharjah are reportedly selling parts of even 2020 models at less than half the price of genuine parts. As a result, the business of second-hand spare parts has developed into a full-fledged multi-million dollar industry involving more than 100 small and medium-sized enterprises spread throughout the country.
Earlier Dubai was considered the main source for second-hand spare parts but over the last few years the market has shifted to Sharjah, mainly because of relatively lower overhead expenses. Many second-hand spare part outlets in Sharjah deal in used used engines which are imported from Japan and then re-exported to many Asian and African countries. There is a huge demand for such goods in East African countries of Uganda, Kenya and Tanzania as well as other countries like Russia, India, Egypt and Pakistan.
Most of the second-hand spare parts are sourced from damaged cars sold by insurance companies at throwaway prices and the rest coming from police auctions. Most buyers prefer to buy these used parts because they are genuine and are often in good condition. While a major portion of used parts are sold in the UAE market itself, almost the entire stock of imported used engines is re-exported. Used engines are in great demand in many African countries which have a big market for re-conditioned automobiles.
It is, therefore, little wonder that an increasing number of African businessmen are seen purchasing their requirements from one of the many second-hand auto spare parts outlets in Dubai and Sharjah. "I come here to purchase used spare parts because the prices in Dubai are one of the cheapest in the world. As a result, I am able to make a neat profit for myself when I sell these goods back home," said Joseph Samara, a spare parts dealer from Nairobi who was in Dubai recently to buy spare parts worth $20,000 for selling in Kenya. "In addition to auto spare parts I would also be purchasing low-priced car and truck tyres (made in China) for selling in the local market in Nairobi," he said.
Automobile Spare Parts
THE MARKET IN AFRICA
Most of the African buyers are buying substantial quantities of automotive batteries, tyres, spare parts, ball bearings, water pumps and a host of electronic goods from Dubai for selling them at a profit in their own countries. "The African customers price-sensitive - they are looking for low priced goods and are not much concerned about the quality aspect," says Ahmed of Bagader Trading, one of the largest stockists of tyres, tubes and batteries in the UAE. "Chinese tyres are in great demand in African markets as they are cheap and provide excellent value for money," he says.
With price taking the upper hand over quality for many buyers, the market for substandard spare parts will always exist. This is a demand that many manufacturers and dealers are all too keen to satisfy. While some of the cheaper spares are imported through the proper channels, there is also a significant area of parallel imports of spare parts. Illegal imports from neighbouring countries have been increasing at an alarming rate. A consequence of such imports is loss of income, loss of business, loss of reputation and credibility and deterioration of the brand image. This not only deprives the government of much needed income but also gives the illegal importer an unfair pricing advantage over the authorised agent.
The used spare parts market in the UAE is as old as that of automobiles. In the last ten years, it has become a full-fledged multi-million dirham business involving a large number of small and large enterprises spread all over the country. Many such outlets also deal in used engines which they import from Japan and then re-export to many African and Asian countries, including Russia, India, Egypt and Pakistan. Second hand spare parts normally come from damaged cars sold by insurance companies and the rest from police auctions. These agents sell mechanical parts at 25 per cent of the price of new genuine parts but the body parts, which are in more demand, are often sold at around half the price of new ones. The rates, however, vary from part-to-part subject to the condition of the spare and the availability of that part in the market.
Dealers of the genuine spares say that they don’t feel any threat from the used spare parts market simply because new genuine parts are purchased by only those who can afford them and more particular about the trouble-free running of their cars. Some of the spare parts dealers consider used parts as direct competition to duplicate parts because of the price margin between the two are close than new genuine parts. People prefer buying used spare parts because they are genuine and are often in good condition. Every spare parts outlet may not provide the full range of used parts of all car models but together the market is capable of providing nearly 90 per cent of such parts. The majority of second hand spares end up in the local UAE market, with customers coming from nearby GCC states. On the other hand, almost the entire stock of imported used engines is re-exported.
Used engines are in good demand in many African and Asian countries, especially those with big re-conditioned car markets. The diversified range of used mechanical and body parts of cars and engines has brought this business parallel to genuine and non-genuine new spare parts businesses as it offers big variety at affordable prices. Dubai has rightly developed a reputation as being a buyer’s market. a glance at the prices of various products confirms that no other place in the Middle East provides such a variety of goods at such low prices.
The decisive factor is that over the decades, Dubai has developed a substantial community of retailers, a sophisticated import system and substantial warehousing for stock. This has lead to the emergence of a keenly competitive market that ensures that prices in Dubai are as much as 10 to 15 per cent lower than in neighbouring markets. “Dubai continues to be number one for buying anything from second hand cars to automobile spare parts and ballbearings,” says Pradeep Gupta of Ameeco Marketing, a leading supplier of ball and roller bearings. Analysts say sales of automobile spare parts and accessories in the Gulf has risen by 20-25 per cent despite the sharp oil price fall in recent years. Several reasons are cited for this development.
One of the most extraordinary new trends in the UAE has been the explosion in the number of visitors from Africa lured by the many ways money can be made in the Gulf. Enterprising Africans have been travelling to Dubai to buy as many products as they can carry for re-sale at huge profits at home. An estimated 200,000 tourists from Africa travel to the UAE each year. Each visitor is estimated to spend a minimum of $10,000 in local shops. More than a quarter of this goes on automobile spare parts and related products. As the spare parts trade to Africa gains in stature, there is bound to be new demands from within the African market. The UAE, with its strategic location and its well established distribution network, can reap rich dividends by catering to the increasing demand for automobile spares, ball bearings and lubricants in the fast developing markets of Africa.
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